Rule 252 of The General Financial Rules 2017 Recovery of Loans Interest and Moratorium
Original Rule Text
Visual Summary
Strictly follow Ministry of Finance instructions for loan terms.
Annual equal principal installments with interest on outstanding amount.
Allowed for principal in specific cases, but not for interest payments.
Executive Summary
Rule 252 of the General Financial Rules, 2017, outlines the essential procedures for the recovery of government loans and the application of interest, along with conditions for granting a moratorium. It mandates strict adherence to Ministry of Finance instructions for loan terms, including interest rates. Loans are generally recovered through annual equal installments of principal, plus interest on the outstanding balance, with provisions for rounding off. Crucially, a moratorium on repayment may be granted for the principal amount in individual cases tied to specific projects, but it is explicitly not allowed for interest payments on loans.
In-Depth Analysis of the Rule
Rule 252 provides a clear framework for managing the recovery of loans extended by the government, emphasizing financial discipline and adherence to prescribed terms. It addresses the critical aspects of interest rates, repayment schedules, and the exceptional circumstance of a moratorium.
Breakdown of the Rule:
- Rule 252 (1) – Procedure for Recovery and Moratorium: This sub-rule establishes that the recovery of loans and interest, as well as the granting of moratoriums, must strictly follow instructions issued periodically by the Ministry of Finance. These instructions cover interest rates and other terms and conditions for loans extended to various entities, including State and Union Territory Governments, Local Bodies, Statutory Corporations, and public sector financial, industrial, and commercial undertakings.
- Rule 252 (2) – Loan Recovery Installments: It specifies that loans are typically recovered through annual equal installments of the principal amount. In addition to the principal, interest due on the outstanding principal balance must also be collected. The rule allows for the rounding off of repayment and interest installments to the nearest rupee, with a final adjustment made during the payment of the last installment.
- Rule 252 (3) – Grant of Moratorium: This sub-rule addresses the possibility of granting a moratorium on loan repayments. A suitable period of moratorium may be agreed upon in individual cases, specifically when considering the projects for which the loans are being utilized. However, it explicitly states that a moratorium will ordinarily not be allowed for the interest payable on loans.
Practical Example:
Imagine the Central Government provides a loan of ₹100 crore to a State Government for a major infrastructure project. According to Rule 252(1), the interest rate, repayment period, and other terms would be dictated by the Ministry of Finance’s latest instructions. Rule 252(2) would then ensure that the State Government repays the ₹100 crore in equal annual principal installments, along with the calculated interest on the remaining outstanding principal each year. If, due to unforeseen delays in the project, the State Government requests a temporary halt in repayments, Rule 252(3) allows for a moratorium on the principal repayment, provided it’s justified by the project’s circumstances. However, the State Government would still be required to pay the interest due on the loan during this moratorium period, as interest payments are not typically subject to such deferrals.
Related Provisions
Understanding Rule 252 is enhanced by reviewing other related provisions within the General Financial Rules, 2017:
- Rule 250 of The General Financial Rules 2017 General Conditions for Regulating All Loans: This rule lays down the overarching general conditions that govern all loans, providing context for the specific recovery procedures in Rule 252.
- Rule 251 of The General Financial Rules 2017 Interest on Loans: This rule specifically details how interest is to be charged on loans, which directly impacts the calculations mentioned in Rule 252(2).
Learning Aids
Mnemonics:
- L.I.M. (Loans: Installments, Interest, Moratorium): Remember that loans involve structured Installments, mandatory Interest, and limited Moratoriums.
Process Flowchart:
Multiple Choice Questions (MCQs)
1. According to Rule 252(1) of the General Financial Rules, 2017, who issues the instructions regarding interest rates and terms and conditions for loan recovery?
- A) The Comptroller and Auditor General of India
- B) The Reserve Bank of India
- C) The Ministry of Finance
- D) The concerned Administrative Ministry/Department
Show Answer
Correct Answer: C) The Ministry of Finance
2. How are loans ordinarily recovered under Rule 252(2) of the General Financial Rules, 2017?
- A) In a single lump sum payment at the end of the loan term.
- B) In annual equal installments of principal along with interest on the outstanding amount.
- C) Through variable installments determined by the borrower’s financial health.
- D) Only the interest is recovered annually, with principal due at maturity.
Show Answer
Correct Answer: B) In annual equal installments of principal along with interest on the outstanding amount.
3. Under Rule 252(3) of the General Financial Rules, 2017, for which component of a loan is a moratorium ordinarily NOT allowed?
- A) Repayment of the principal amount
- B) Interest payable on loans
- C) Both principal and interest
- D) Only for project-specific components
Show Answer
Correct Answer: B) Interest payable on loans
4. A moratorium on loan repayment, as per Rule 252(3) of the General Financial Rules, 2017, can be agreed to in individual cases primarily based on what consideration?
- A) The borrower’s general financial hardship.
- B) The political implications of the loan.
- C) The projects for which the loans are to be utilized.
- D) The discretion of the local body administering the loan.
Show Answer
Correct Answer: C) The projects for which the loans are to be utilized.
5. Which of the following entities is NOT explicitly mentioned in Rule 252(1) of the General Financial Rules, 2017, as a recipient of loans whose terms are prescribed by the Ministry of Finance?
- A) State Governments
- B) Private individuals
- C) Local Bodies
- D) Statutory Corporations
Show Answer
Correct Answer: B) Private individuals
Frequently Asked Questions
Can interest payments on government loans be deferred under a moratorium as per Rule 252 of the General Financial Rules, 2017?
No, Rule 252(3) explicitly states that no moratorium shall ordinarily be allowed in respect of interest payable on loans. Moratoriums are typically considered only for the principal repayment amount.
How are loan installments calculated for recovery under Rule 252(2) of the General Financial Rules, 2017?
Loans are ordinarily recovered in annual equal installments of principal. In addition, interest due on the outstanding amount of principal is collected from time to time. Both repayment and interest installments may be rounded off to the nearest rupee, with a final adjustment at the last payment.
Who is responsible for prescribing the terms and conditions for loans to public sector undertakings under Rule 252(1) of the General Financial Rules, 2017?
The Ministry of Finance is responsible for issuing instructions from time to time that prescribe the interest rates and other terms and conditions for loans to various entities, including public sector financial, industrial, and commercial undertakings.
Key Takeaways
- Loan recovery procedures, including interest rates and moratoriums, are governed by strict instructions from the Ministry of Finance.
- Loans are typically repaid through annual equal principal installments, plus interest on the outstanding balance.
- Moratoriums on repayment may be granted for the principal amount in project-specific cases, but not for interest payments.
- The rule applies to a wide range of government-backed entities, including State/UT Governments, Local Bodies, and Public Sector Undertakings.
Conclusion
Rule 252 of the General Financial Rules, 2017, serves as a cornerstone for the prudent management of government loans. By clearly defining the recovery mechanisms, the calculation of interest, and the precise conditions under which repayment moratoriums can be considered, it ensures financial accountability and transparency. Adherence to these guidelines is crucial for maintaining the integrity of public finances and supporting the effective utilization of funds for national development projects.