220. The rates of interest to be levied on the different classes of loans and advances will be determined by Government in the Finance Department from time to time and no deviation shall be allowed without the express sanction of that department. A compound interest at a rate higher by 2½ per cent than the prevailing rate should be prescribed with the stipulation that if the instalments of principal and/or interest are paid punctually on due dates and there are no overdues, either of principal or interest or both, in respect of the previous instalments the rate of interest to be charged shall be reduced by 2½ per cent and only simple interest will be charged. In the case of default in the punctual payment of principal and /or interest, the entire balance of the loan with interest should become recoverable at once.
All interest on loans and advances should be credited in full to the appropriate head of revenue under XVI Interest, irrespective of the period of the loan to which it may relate. If any principal sums lent prove irrecoverable they must, after sanction to their write off is obtained under para 238, be charged as expenditure by debit to the head 71 Misc, and per contra credit afforded to the relevant loan head.
NOTEIn the event of a default, the borrowers will pay the equated instalment worked out with higher rate of interest together with interest thereon at the same (higher) rate from the due date of its payment till the date of actual payment.