RBI tells SC- Banks told to ensure interest payback!

Mumbai, November 02: The Reserve Bank of India informed the Supreme Court on Sunday that it has advised banks and financial companies to fully comply with a government scheme to pay back borrowers compound interest or interest on interest, charged on their loans during the six-month moratorium period.

 

The RBI, in a short affidavit, said its circular was issued on October 26, just three days after the Ministry of Finance approved the scheme for ex-gratia payment of the difference in the compound interest and simple interest charged between March 1 and August 31 for eight categories of loans worth up to ₹2 crore by November 5, 2020. The RBI said it has 'advised' commercial banks, co-operative banks, financial institutions and non-banking financial companies to comply with the government’s pay-back scheme.

 

 

“RBI has advised all Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks), all Primary (Urban) Co-operative Banks/ State Cooperative Banks/ District Central Co-operative Banks, all All India Financial Institutions and all Non-Banking Financial Companies (including Housing Finance Companies) to be guided by the provisions of the Scheme and take necessary actions within the stipulated timeline therein,” the affidavit filed through advocate Ramesh Babu M.R. said.

 

A three-judge Bench led by Justice Ashok Bhushan is scheduled to hear the case on November 2. The government scheme is meant to bring additional relief to borrowers affected by the pandemic-induced financial distress. The Union Cabinet had approved the scheme on October 21. The scheme will cover MSME, education, housing, consumer durables, credit card, auto, personal and consumption loans.

 

Clause three of the government scheme defines all financial institutions to include banking companies, public sector banks, cooperative banks, regional rural banks, all India financial institutions, non-banking financial companies, housing finance companies registered with the RBI, and national housing banks.

 

“The Central Government has directed that all lending institutions shall give effect to the scheme and credit the amount calculated as per the scheme into the accounts of the borrowers by November 5,” the Ministry of Finance had earlier declared in an affidavit. All lending institutions will credit the difference between compound interest and simple interest on loans in the respective accounts of eligible borrowers for the period between March 1 and August 31, the government affidavit had said.

 

“The amount shall be credited by each of the lending institutions irrespective of whether such eligible borrowers have fully availed or partially availed or have not availed of the moratorium/deferment in payment of instalments as per the circulars dated March 27 and May 23 issued by the RBI,” the Finance Ministry affidavit had explained. In the last court hearing on October 14, the Bench had frowned upon a perceived delay in giving relief to cash-strapped borrowers, mostly individuals in dire financial straits casued by the pandemic.