The Ministry of Finance has issued a notification (F. No.2/12/2020-BOA.I dated 23.10.2020) announcing the scheme for grant of ex-gratia payment of difference between Compound Interest and Simple Interest for six months to the borrowers in specified loan accounts (01.03.2020 to 31.08.2020) wherein the following issues are to be addressed in order to make the scheme more perfect:
1. This scheme is not applicable to the borrowers, who have sanctioned limit and outstanding amount exceeding Rs. 2 Crores. In fact those who have borrowed more are the worst sufferers and denying them the benefit of refund of compound interest to them does not seem to be reasonable.
2. Banks would automatically debit Penal Interest @ 1% or 2% on the balance outstanding in excess of the drawing power and for non-submission of stock statements also in the case of Cash Credit Accounts. Due to lock down they would not have been able to run the business and keep the outstanding within the limits and naturally they would not have submitted the stock statements also. This penal interest would have been charged for the installments which were not paid during the moratorium period in the case of Term Loans. If the Government’s intention is to mitigate the sufferings of the borrowers, this Penal Interest should also be refunded to the borrowers and to be claimed from the Government as ex-gratia.
3. If the borrower was not charged with interest on interest, which is termed as compound interest, the question of refund of the difference between simple interest and compound interest will not arise and consequently claiming the refund to be made as ex-gratia from the Government also will not arise. But as per the notification the Financial Institutions have to charge compound interest, refund and claim from the Government.
4. Further calculation of the compounding interest charged under various schemes by the variety of Lending Institutions is cumbersome because every institution follows its own system of calculating interest due to multiple schemes wherein the EMIs are to be split for principal and interest. Further there is no fixed rule for calculation compound interest and penal interest for defaults. Again the claim, which is to be certified by the Statutory Auditors of the Institution, is to be lodged on or before 15th December 2020, which is too short since it will be very difficult for them to prefer the claim due to the complexity of the issues. Hence time may be given till 31.03.2021.
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The threshold limit of Rs. 2 Crores is the aggregate loan amount taken by the borrower across all lending institutions and the lending institutions were advised to assess the limit based on the information available with them and from credit bureaus. Small NBFCs may not have access to the credit bureaues and they have to depend on the declaration furnished by the borrower to the effect that his total limts with all lending institutions is less than Rs. 2 Crore. To what extent the lending institutions can depend on such declarations is a big question and how the Statutory Auditor can certify the the ex-gratia in these circumstances?
The lending institutions have to complete the excersise by giving credit to the borrowers’ accounts on or before 05.11.2020. The time given is too short within which they can not complete the process because finding exactly the compound interest charged will take time due to various types charging interest. In addition certain institutions charge late payment fees, which should also be refunded.