Association of Indian Banks turns to Ministry of Finance for reimbursement of compound interest exemption by banks
Center repays penal interest on loans up to Rs 2 crore, but North Block has yet to decide to repay loans over Rs 2 crore
Posted on 05.24.21, 01:23 AM
The Association of Indian Banks (IBA) on behalf of the lenders has approached the Ministry of Finance to repay their burden due to a recent Supreme Court ruling on waiving compound interest or penalty interest on all loan accounts that have opted for a moratorium during March-August 2020.
The Supreme Court’s March judgment ordered banks to waive compound interest on loans over Rs 2 crore, subject to a moratorium, as lower loans got general interest on the interest waiver in November of Last year.
“Whatever amount is recovered as interest on interest / compound interest / penalty interest for the period during the moratorium, it will be refunded and will be adjusted / credited in the next installment of the loan account”, a three – Judge Ashok Bhushan’s investigating magistrate, R. Subhash Reddy and MR Shah had ruled on March 23, 2021.
The government has agreed to absorb the cost of waiving penalty interest on loans below Rs 2 crore. But there is no communication yet from North Block on whether it will reimburse the banks for the repayments they make on loans over Rs 2 crore.
While banks are at different stages of executing the repayment order, PTI citing Punjab & Sind Bank Managing Director S. Krishnan said the bank burden is around Rs 30 crore.
The issue of reimbursement of the reimbursement amount by the government is being pursued by the IBA on behalf of the banks, he said: “So far we have not heard anything positive about this.”
The Supreme Court refused to interfere with the Center and the Reserve Bank of India’s (RBI) decision not to extend the moratorium on loans beyond August 31 last year, saying it was was a political decision.
After the judgment rendered in March by the highest court, the Icra rating agency estimated that the compound interest for the six-month moratorium for all lenders would be Rs 13,500-14,000 crore.
The government reimburses the banks for all criminal interest up to Rs 2 crore, or Rs 6,500 crore.
Waiving penalties for borrowers over Rs 2 crore will cost banks Rs 7,000 to 7,500 crore, Icra said.