Scheme for grant of ex-gratia payment of difference between compound interest and simple interest for six months period to borrowers in specified loan accounts 

The Government of India has announced the Scheme for grant of ex-gratia payment of difference between compound interest and simple interest for six months to borrowers in specified loan accounts (1.3.2020 to 31.8.2020) (the ‘Scheme’) on October 23, 2020.

The Scheme mandates ex-gratia payment to certain categories of borrowers by way of crediting the difference between simple interest and compound interest for the period between March 1, 2020 to August 31, 2020 by respective lending institutions.

Benefits under the scheme would be routed through lending institutions.

Operational Guidelines are as under:

grant of ex-gratia payment of difference between compound interest and simple interest

1. Object of the scheme

In view of the unprecedented and extreme COVID-19 situation, the object of the Scheme is to provide ex-gratia payment of difference between compound interest and simple interest by ways of relief for the period from 1sr March 2020 to 31sr August 2020 to borrowers in specified loan accounts. Such payment does not constitute a contractual, legal or equitable liability of the Central Government and is only an ex-gratia payment to the  following designated class of borrowers in view of the COVID-19 pandemic

2. Applicability of the scheme

This scheme shall apply to all lending institution s, which must be either a banking company, or a Public Sector Bank, or a Co-operative Bank [i.e., an Urban Co-operative Bank or a State Co-operative Bank or a District Central Co-operative Bank], or a Regional Rural Bank, or an All India Financial Institution, or a Non-Banking Financial Company or a Housing Finance Company registered with Reserve Bank of India (RBI) or Nationa l Housing Bank as the case may be. A Non-Banking Financial Company-Micro Finance Institution should be a member of a Self-Regulatory Organisation (SRO) recognised by RBI

3. Eligibility criteria

(a) Borrowers in the following segments/classes of loans, who have loan accounts having sanctioned limits and outstanding amount of not exceeding 2 crore [aggregate of all facilities with lending institutions] as on 29.2.2020, shall be eligible under the Scheme:

• • MSME loans
  • Education loans
  • Housing loans
  • Consumer durable loans
  • Credit card dues
  • Automobile loans 
  • Personal loans to professionals
  • Consumption loans

Any borrower whose aggregate of all facilities with lending institutions is more than Rs. 2 crore (sanctioned limits or outstanding amount) will not be eligible for ex-gratia payment under this scheme

(b)  The aforesaid eligibility shall be subject to the following further conditions and stipulations:

• • Account should be standard as on 29.2.2020, i.e., loan should not be a Non- Performing Asset (NPA) as on 29.2.2020.
  • Lending institution must be either a banking company, or a Public Sector Bank, or a Co-operative Bank [e., an Urban Co-operative Bank or a State Co-operative Bank or a District Central Co-operative Bank], or a Regional Rural Bank, or an All India Financial Institution, or a Non- Banking Financial Company or a Housing Finance Company registered with RBI or National Housing Bank as the case may be. A Non-Banking Financial Company-Micro Finance Institution should be a member of a Self-Regulatory Organisation (SRO) recognised by RBI.
  • The ex-gmtia payment under this scheme shall be admissible irrespective of whether the borrower in sub-clause (1) had fully availed or partially availed or not availed of the moratorium on repayment announced by RBI vide its circular DORNo. BP.BC.47121.04 .0481 2019-20, dated 27.3.2020 and extended on 23.5.2020 

4. Benefit under the scheme

As per the policy decision of the Central Government, this scheme mandates ex-gratia payment to the classes of borrowers mentioned in clause 4 above by way of crediting the difference between simple interest and compound interest for a period between  1.3.2020 to 31.8.2020 by respective lending institutions.

The lending institutions shall credit the difference between compound interest and simple interest with regard to the eligible borrowers mentioned in clause 4 above in respective accounts of such borrowers for the period to be reckoned, irrespective of whether such borrowers have fully availed or partially availed or not availed of the moratorium on repayment of the respective loans as announced by the RBI vide its circular DOR.No. BP.BC.47 121.04.048120 19-20, dated 27th March 2020 and extended on 23rd May 2020.

5. Manner of claiming reimbursement

The respective lending institutions shall, after so crediting amounts in the accounts of aforesaid eligible borrowers, claim reimbursement from the Central Government.

For the purpose of claiming of reimbursement by the lending institution s covered under this scheme, the compounding of interest shall be reckoned on monthly basis, except where the contrary is specified. Further, for the purpose of claiming of reimbursement by respective lending institutions.

6. Rate of interest

• Education loans, Housing loans, Automobile loans, Personal loans to professionals, Consumption loans -The rate of interest to be applied for calculating the difference between simple and compound interest shall be the contracted rate as specified in loan agreement/ documentation in this respect.
• Consumer durable loans -The rate of interest to be applied for calculating the difference between simple and compound interest shall be the contracted rate as specified in loan agreement/ documentation. In cases where, no interest is being charged on Equated Monthly Instalments (EMI) for a specified period, for the purpose of ex-gratia payment, interest may be applied at the lender’s base rate / Marginal Cost of funds based Lending Rate (MCLR) whichever is applicable.
• Credit card dues -The rate of interest shall be the Weighted Average Lending Rate (WALR) charged by the card issuer for transactions financed on EMI basis from its customers during the period from 1sr March 2020 to 31sr August 2020 . The computation of the WALR shall be certified by the statutory auditor of the card issuer.
• MSME loans -The rate of interest to be applied for calculating the difference between simple and compound interest shall be the contracted rate as specified in loan agreement/ documentation in respect of the term l For cash credit (CC) / overdraft (OD), while the contracted rate of interest would similarly apply, the basis of calculation for simple and compound interest would differ as explained below.
• The rate of interest would be as prevailing on 29th February 2020, i.e., in case the rate of interest has changed thereafter, it shall not be reckoned for the purposes of this computation. Penal interest or penalty for late payment would not be reckoned as part of the contracted rate or WALR.

7. Mode of calculation of simple and compound interest

(i) As Education loans, Housing loans, Consumer Durable loans, Credit card dues, Auto Loans, Personal loans and Consumption loans are loans that are in the form of a Term Loan/ Demand Loan and not a Cash Credit [CC] or an Overdraft facility [OD], the outstanding in the account as at the end of 2.2020 will be the reference amount for Term Loans on which the interest (simple as well as compound) will be calculated. While making the calculation, repayments in the loan account during the period to be reckoned will be ignored . This will make the approach of the lending institutions uniform for all borrowers, irrespective of whether they have fully availed or partially availed or not availed of the moratorium on repayment of the respective loans as announced by the RBI vide its circular DOR.No. BP.BC.47 121.04.04812019-20, dated 27th March 2020 and extended on 23rd May 2020.

(ii) As MSME loans are sanctioned by way of Term Loan or CCI OD, the following provisions will apply:

• For Term Loans:

The outstanding in the account as at end of 29.2.2020 will be the reference amount for Term Loans on which the interest (simple as well as compound) will be calculated. While making the calculation repayments in the loan account during the period to be reckoned will be ignored. This will make the approach uniform for all borrowers, irrespective of whether they have fully availed or partially availed or not availed of the moratorium on repayment of the respective loans as announced by the RBI vide its circular DOR.No . BP.BC.47121.04.048120 19-20, dated 27th March 2020 and extended on 23rd May 2020.

• For Cash Credit I Overdraft facilities:
  • Simple interest for the period will be calculated on daily product basis (i.e., on the daily outstanding as at end of the day) at the rate of interest as on 29.2.2020.
  • (ii) Compound interest will be calculated for the period at the rate of interest as on 29.2.2020 and compounding will be done on monthly rests.

It is clarified that this method will also be used in case some loans under sub-clause (i) have been sanctioned and disbursed by way of Overdraft / Cash Credit facility.

8.  Claim processing

(1) Lending institutions can lodge their claim for reimbursement latest by 15th December 2020 only after crediting amounts as Claim should be pre-audited by the statutory auditor of the lending institutions and a certificate in this regard shall be attached to the claim.

(2) Claims shall be submitted to a designated officer(s) I cell at State Bank of India (SBI), which will function as the nodal agency under the present scheme and shall receive funds from the Government of India for settlement of claims of lending institutions. SBI shall evaluate the claims to ensure that they are in conformity with this scheme’s guidelines, and shall furnish to the Central Government statements of claims found eligible and claims settle.

9. Grievance Redressal Mechanism

(1) Each of the lending institutions referred in clause 3 above shall put in place a grievance redressal mechanism for the eligible borrowers for redressal of their grievances arising out of the present scheme within one week from the date of issuance of these scheme guidelines, at appropriate level(s).

(2) It is clarified that while putting in place such grievance redressal mechanism, lending institutions can keep in mind the communication dated  1.10.2020 issued  by the Indian Banks’ Association in respect of resolution  framework for COVID-19 related stress for guidance.

(3) Grievances, if any, of the lending institutions shall be resolved through the designated cell at the State Bank of India in consultation with the Ministry of Finance, Government of India.

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