RBI Directs Banks On Payment Of Interest On Interest During Moratorium

On Tuesday, the Reserve Bank of India (RBI) issued a direction to banks and other lending institutions to take necessary actions within stipulated timelines on ex-gratia payment of the difference between compound interest and simple interest for the moratorium period, as notified by the government last week.

"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, which 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," the notification said.

"All lending institutions are advised to be guided by the provisions of the Scheme and take necessary action within the stipulated timeline," it concluded.

Last week, the Ministry of Finance issued guidelines for the payment of the difference between simple interest and compound interest for the moratorium period granted in the light of COVID-19. These guidelines are only applicable to loan accounts with sanctioned limits and outstanding loan amounts not exceeding Rs 2 crore as on 29 February 2020.

MSME loans, education loans, housing loans, credit card dues, consumer durable loans, automobile loans, personal loans to professionals and consumption loans are eligible under the scheme if the loans were classified as "standard" by banks as on 29 February 2020.