IBA asks government to reimburse compound interest exemption by banks
The Association of Indian Banks (IBA), on behalf of the lenders, contacted the Ministry of Finance to repay their burden due to a recent Supreme Court ruling on waiving compound interest on all loan accounts that opted for a moratorium between March and 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.
The compound interest support program for the loan moratorium cost the government Rs.5,500 crore in 2020-2021, and the program covered all borrowers, including the one who did not benefit from the moratorium.
Different banks are at different stages of the execution of the order.
Punjab & Sind Bank Managing Director S Krishnan said the burden on the bank due to the waiver was around Rs 30 crore.
The issue of reimbursement of the waiver amount by the government is being pursued by IBA on behalf of the banks, he said.
This time, the Supreme Court’s order is limited to those who have made use of the moratorium. Thus, the liability of the public sector bank is expected to be less than Rs 2,000 crore according to rough calculations, according to sources.
On March 27 of last year, the RBI announced a loan moratorium on the payment of installments of term loans maturing between March 1 and May 31, 2020, due to the pandemic, later the same. was extended until August 31.
On March 23, 2021, the Supreme Court ordered that no compound or criminal interest be charged to borrowers for the six-month loan moratorium period, which was announced last year amid the COVID-pandemic. 19, and the amount already invoiced must be refunded, credited or adjusted.
The Supreme Court refused to interfere with the Center and Reserve Bank of India’s (RBI) decision not to extend the moratorium on lending beyond August 31 last year, saying it was was a political decision.
Rejecting the requests for a complete waiver of interest, the court ruled that such a decision would have consequences for the economy. The bench also said the waiver of interest would affect depositors. Along with this, the court also dismissed the claims for further relief in the case.
Shortly after the order, the RBI called on banks and NBFCs to immediately put in place a board approved policy to reimburse / adjust the “interest on interest” charged to borrowers during the six month moratorium. , in accordance with the judgment of the Supreme Court.
The central bank has also required lending institutions to disclose the total amount to be repaid / adjusted for their borrowers based on the reliefs in their financial statements for the year ending March 31, 2021.
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