(T.E.T)
The finance ministry has asked banks to share details of their board-approved policy on refund or adjustment of ‘interest on interest’ charged to borrowers during the moratorium period March to August 2020.
An official confirmed the development and said that information has been sought on the methodology used for calculating the amount to be refunded or adjusted for different facilities.
“Banks are expected to provide details before the end of this quarter. .We have asked if the Indian Banks Association (IBA) has formulated any policy in this regard in consultation with other industry participants,” the official said.
On account of the stress due to the Covid-19 pandemic, the Reserve Bank of India had announced a loan moratorium scheme to grant temporary relief to borrowers for payment of instalments due between March and August 2020.
In March this year, the Supreme Court refused to extend the moratorium beyond August 31, 2020, but directed lenders to waive interest on interest for all borrowers.
“We also want an assessment of the liabilities of state-run banks,” said the official.
As per the RBI guidelines, lending institutions must disclose the aggregate amount to be refunded/adjusted in respect of their borrowers based on the reliefs in their financial statements for the year ending March 31, 2021.
In a recent report, rating agency ICRA NSE 0.56 % said the liabilities arising on this account across all lenders are in the Rs 13,500-14,000 crore range, and the relief already extended over loans of up to Rs 2 crore has cost the exchequer about Rs 6,500 crore.
Earlier this year, IBA had made representations to the government seeking compensation on payment of the interest on interest component. “It was expected that the government will bear partial, if not full, load of the total amount,” said a banker aware of the developments.
The government, however, is not inclined to bear this cost as it already compensated banks for the interest on interest they had lost on loans outstanding below Rs 2 crore.
