The Reserve Bank of India (RBI) on Tuesday asked all lending institutions, including non-banking financial companies, that by November 5 they must implement the scheme of waiver of interest on interest for loans up to Rs 2 crore for the six-month period beginning March 1.

The apex bank said “the rate of interest would be as prevailing on 29 February 2020”. In case the rate of interest has changed thereafter, it shall not be reckoned for the purpose of the computation. The payable ex-gratia amount shall have to be credited to the account of the borrower by the respective lending institutions as ex-gratia payment under the scheme.

The lending institutions will have to credit the required payment which is the difference between the compound interest and the simple interest for the period between March 1 and August 31 to the borrowers account by November 5 — and then seek reimbursement from the government.

Last Friday, the Centre had announced the operational guidelines with regard to the scheme, following the Supreme Court’s direction to implement the interest waiver scheme.

The top court on October 14 had directed the Centre to implement “as soon as possible” the interest on interest waiver on loans of up to Rs 2 crore under the RBI moratorium scheme in view of the pandemic, saying the common man’s Diwali is in the government’s hands.

The scheme will apply to those who have availed the loan moratorium of the RBI and also those who did not. It will cover housing loans, education loans, credit card dues, auto loans, MSME loans, personal loans to professionals, consumer durable loans and consumption loans.

In a circular issued to banks, housing finance companies, NBFCs and other financial institutions, the central bank said all lending institutions are advised to be guided by the provisions of the scheme and take necessary action within the stipulated timeline.

According to the scheme announced by the government, the “ex-gratia payment” will be admissible irrespective of whether the borrower had fully availed or partially availed or not availed of the moratorium on repayment announced by the RBI in March and thereafter in May. It said that the period to be reckoned for crediting the difference between compound interest and simple interest would be from March 1 to August 31.

It added that “the rate of interest would be as prevailing on 29 February 2020”. In case the rate of interest has changed thereafter, it shall not be reckoned for the purpose of the computation. The payable ex-gratia amount shall have to be credited to the account of the borrower by the respective lending institutions as ex-gratia payment under the scheme.

In a tweet, the office of finance minister Nirmala Sitharaman said “RBI advises all lending institutions to be guided by the provisions of 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 and take necessary action within the stipulated timeline”.

It is understood that the amounts will be credited to the borrower’s loan account, which could give some relief to the latter.

The scheme said that when it comes to education, housing, automobile, consumption loans and personal loans to individuals, the rate of interest to be applied for calculating the difference between the compound interest and the simple interest will be the contracted rate as specified in the loan agreement. Further, the relief will only apply to accounts that are standard as on February 29.