What changed
The Government of India announced a scheme on October 23, 2020, requiring lending institutions to provide ex-gratia payment to borrowers in specified loan accounts. This payment covers the difference between compound interest and simple interest for the period from March 1, 2020, to August 31, 2020. RBI has directed all commercial banks, cooperative banks, NBFCs, and financial institutions to follow the scheme's provisions and take necessary action within the stipulated timeline.
What it means for you
Banks and lenders must identify eligible loan accounts and credit the interest differential to borrowers, impacting their interest income for the period. This is a regulatory obligation with a fixed timeline, requiring immediate operational adjustments to avoid non-compliance. The scheme aims to provide relief to borrowers affected by the COVID-19 pandemic.
What you must do
- Identify all loan accounts eligible under the scheme as per the government's definition.
- Calculate the difference between compound interest and simple interest for the period March 1 to August 31, 2020.
- Credit the ex-gratia amount to eligible borrowers' accounts within the stipulated timeline.
- Maintain detailed records of calculations and credits for audit and regulatory review.
- Ensure compliance with the scheme's provisions as detailed in the government's notification.
Who it affects
All commercial banks including small finance banks, Local area banks and regional rural banks, Primary urban cooperative banks, State and district central cooperative banks, All-India financial institutions, Non-banking financial companies including housing finance companies
What is the ex-gratia payment under this scheme?
It is the difference between compound interest and simple interest for the six-month period from March 1, 2020, to August 31, 2020, which lenders must credit to eligible borrowers.
Who are the eligible borrowers under this scheme?
The scheme specifies certain categories of loan accounts; lenders must refer to the government's scheme document for exact eligibility criteria.
What is the deadline for implementing this scheme?
RBI advises all lending institutions to take necessary action within the stipulated timeline as per the scheme, but the exact date is not specified in this notification.