Rule 257 of The General Financial Rules 2017 Installments of Loans

Rule 257 of The General Financial Rules 2017 Installments of Loans

Visual Summary

Executive Summary

Rule 257 of the General Financial Rules, 2017, outlines the procedures for managing loans disbursed in installments. It mandates that each loan installment is generally treated as a separate loan for repayment and interest calculation. However, installments drawn within a single financial year can be consolidated into one loan. The rule specifies that simple interest is payable on consolidated loans from the date of drawal to consolidation. Annual repayments are due on the anniversary of drawal or consolidation. While a moratorium on principal repayment may be granted in deserving cases, it is explicitly not allowed for interest payments. The sanctioning authority can close a loan and initiate repayment if there’s undue delay in the borrower taking the last installment, with the Accounts Officer responsible for flagging such delays. It also emphasizes that equal periodical installments assume punctual payment, requiring recalculation of interest in case of defaults.

In-Depth Analysis of the Rule

Rule 257 provides crucial guidelines for the administration of public money lent in installments, ensuring clarity in accounting and repayment obligations. It addresses how individual installments are treated, the possibility of consolidation, and the conditions under which repayment terms can be adjusted.

Breakdown of the Rule:

• Separate Loan Treatment: Each installment of a loan is to be treated as a distinct loan for the purposes of principal repayment and interest payment.
• Consolidation of Installments: An exception allows for the consolidation of various installments drawn within a single financial year into one unified loan at the end of that year.
• Interest on Consolidated Loans: If installments are consolidated, simple interest at the prescribed rate is payable on each installment from its drawal date until the date of consolidation.
• Annual Repayment Schedule: Borrowers must arrange annual repayment of the loan (individual or consolidated) and its interest on or before the anniversary date of drawal or consolidation, in the number of installments prescribed by the sanctioning authority.
• Moratorium on Principal: The sanctioning authority may, in deserving cases, grant a moratorium on the repayment of the principal amount. However, a moratorium on interest payments is not permitted.
• Closure of Loan for Delay: If there is an undue delay by the debtor in taking out the last installment, the sanctioning authority can declare the loan closed and order the commencement of capital repayment.
• Accounts Officer’s Role: The Accounts Officer is responsible for identifying and reporting any delays in taking out loan installments to ensure timely action by the sanctioning authority.
• Punctual Payment Assumption: The calculation of equal periodical installments for loan repayment and interest is based on the assumption of punctual payments. Any default necessitates a recalculation of the interest amount.

Practical Example:

Consider a state government taking a public loan in three installments: Rs. 10 crore in April, Rs. 15 crore in July, and Rs. 5 crore in October, all within the same financial year. As per Rule 257 of the General Financial Rules, 2017, these three installments can be consolidated into a single loan of Rs. 30 crore at the end of the financial year. Simple interest would be calculated on each installment from its respective drawal date (April, July, October) until the consolidation date. The annual repayment schedule for the consolidated Rs. 30 crore loan, along with its interest, would then commence on the anniversary of the consolidation date, as prescribed by the sanctioning authority. If the state government faced initial financial constraints, a moratorium on the principal repayment might be granted, but interest payments would still be mandatory.

Related Provisions

Understanding Rule 257 is enhanced by examining other provisions related to loan management and financial propriety:

• Rule 250 of The General Financial Rules 2017 General Conditions for Regulating All Loans: This rule outlines the overarching conditions and principles that govern all loans of public money, providing context for the specific installment rules.
• Rule 258 of The General Financial Rules 2017 Defaults in Payment: This rule details the consequences and procedures for handling defaults in loan repayment and interest, directly complementing Rule 257’s emphasis on punctual payments.
• Rule 256 of The General Financial Rules 2017 Submission of Utilization Certificate Reports Statements etc: This rule specifies the requirements for submitting utilization certificates and reports for loans, ensuring accountability in how borrowed funds are used.

Learning Aids

Mnemonics:

• Installments Can Consolidate Annually, Moratorium Closes Always Punctually.

Process Flowchart:

Multiple Choice Questions

Frequently Asked Questions

Key Takeaways

• Each loan installment is generally treated as a separate loan for repayment and interest.
• Installments within a financial year can be consolidated into a single loan, with simple interest calculated from drawal to consolidation.
• Moratoriums are permissible for principal repayment but strictly not for interest.
• Sanctioning authorities can close loans and demand repayment if there’s undue delay in taking the last installment, with the Accounts Officer monitoring such delays.

Conclusion

Rule 257 of the General Financial Rules, 2017, establishes a clear framework for managing public loans disbursed in installments. Its provisions ensure meticulous accounting, proper interest calculation, and mechanisms to address delays, thereby safeguarding public funds and promoting financial discipline among borrowers. Adherence to these guidelines is essential for transparent and efficient financial management within the government.