Rule 258 - Loan Defaults | KartavyaDesk
Original Rule Text
Rule 258 (1) Defaults in Payment. The loan sanctions in favour of State or Union Territory Governments and the loan sanctions or undertakings or agreements in case of wholly Government owned companies or Public Sector Undertakings shall invariably include provision for the levy of penal interest on overdue installments of interest or principal and interest. The loan sanctions and agreements in all other cases shall invariably stipulate a higher rate of interest and provide for lower rate of interest in the case of punctual payments. The penal or the higher rate of interest, as the case may be, shall not, except under special orders of Government, be less than two and half per cent per annum above the normal rate of interest prescribed by Government from time to time for the loans advanced. Rule 258 (2) Any default in the payment of interest upon a loan or in the repayment of principal, shall be promptly reported by the Accounts Officer, to the authority which sanctioned the loan. The responsibility of the Accounts Officer, under this rule refers only to the loans, the detailed accounts for which are kept by him. Rule 258 (3) Procedure to be followed in case of defaults in repayment of interest free loans or loans sanctioned at concessional rates of interest: (i) In the case of grant of interest free loans e.g., loans to technical educational institutions for construction of hostels, prompt repayment shall be made a condition for the grant of interest free loans. The sanction letter in such cases shall provide that in the event of any default in repayment, interest at rates prescribed by Government from time to time will be chargeable on the loans. (ii) In the case of loans sanctioned at concessional rates of interest the difference between the normal rate and concessional rate), shall be made conditional upon prompt repayments of principal and payment of interest thereon by the entity concerned. (iii) In the cases where in addition to interest free loans, subsidy is also provided to meet running expenses the sanction letter shall provide that in the event of any default in repayment, the defaulted dues would be recovered out of the subsidy
What This Means
Rule 258 of the General Financial Rules (GFR) 2017 deals with what happens when someone doesn't pay back a loan on time. It's basically about ensuring that there are consequences for late payments, especially when the government has given out the loan. The rule makes sure that loan agreements include clauses about penal interest (extra interest charged for being late) or a higher interest rate that gets reduced if payments are made on time. This applies to loans given to State governments, Union Territories, government-owned companies, and Public Sector Undertakings (PSUs).
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- •Loan agreements must include provisions for penal interest on overdue payments.
- •For other borrowers, agreements should stipulate a higher interest rate with a reduction for timely payments.
- •Penal/higher interest should be at least 2.5% above the normal rate, unless the government makes a special order.
- •Accounts Officers must promptly report payment defaults to the loan-sanctioning authority.
- •Interest-free loans require prompt repayment as a condition, with interest charged upon default.
Practical Example
The Ministry of Housing and Urban Affairs sanctions a loan of ₹50 crore to the 'Swachh Bharat Nigam Ltd' (a wholly government-owned company) for a waste management project. The loan agreement, as per Rule 258, includes a clause stating that if any installment of principal or interest is overdue, a penal interest of 3% per annum above the normal interest rate of 8% will be levied. Later, Swachh Bharat Nigam Ltd misses a payment deadline. The Accounts Officer at the Ministry immediately reports this default to the sanctioning authority. The Nigam is then charged the penal interest, as stipulated in the loan agreement, until the overdue amount is cleared.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What is considered a 'default in payment' under Rule 258?▼
Who is responsible for reporting defaults?▼
Does Rule 258 apply to all types of government loans?▼
What happens if an entity defaults on an interest-free loan?▼
Can the penal interest rate be lower than 2.5% above the normal rate?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Test Your Knowledge
Question 1 of 3
According to Rule 258 of GFR 2017, what is the minimum penal interest that should be levied on overdue installments for loans sanctioned to State Governments, unless otherwise specified by the Government?
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