The Supreme Court on Wednesday adjourned until the next day its hearing in the case on a loan relief scheme for borrowers to help them tide over the coronavirus pandemic. The top court was hearing a batch of petitions regarding charging of interest on interest – or compound interest – by banks on EMIs delayed by borrowers for the March-August period under a scheme approved by the RBI that would provide relief to millions of people.
The RBI had earlier instructed banks and other financial institutions to credit the difference in compound interest and simple interest on repayments of eligible loans up to Rs 2 crore due between March and August, by November 5.
The loan relief is for personal, housing, education, auto and consumer durables loans, loans to micro, small and medium enterprises (MSME), besides loans to micro, small and medium enterprises (MSME) and credit card dues, subject to applicable conditions.
The lenders were asked to credit the amount irrespective of whether the borrower fully or partially opted for the relief, and claim a reimbursement from the government by December 15.
The government has decided to bear the cost of the scheme, estimated at Rs 6,500 crore.
The amount – which is the difference between compound interest and simple interest for the six-month period – paid by lenders on eligible loans will be reimbursed by the government at a later date.
The government was forced to rethink its loan relief scheme after the RBI allowed borrowers to postpone loan instalments due between March and August, but also permitted banks to charge interest on such delays. That meant the borrower would be able to pay later, but at additional cost.
Initially, the RBI on March 27 had issued the circular which allowed lending institutions to grant a moratorium on payment of instalments of term loans due between March 1, 2020, and May 31,2020, on account of the pandemic. Later, the period of the moratorium was extended till August 31 this year.