The Reserve Bank of India (RBI) on Wednesday cleared the air on who stood to bear the expense of the court-mandated waiver of compound interest for all loans through the moratorium period, asking all lenders to refund this element to their borrowers. Lenders will have to right away place in spot board-authorized policies to refund or adjust the ‘interest on interest’ charged to borrowers through the moratorium period – March 1, 2020, to August 31, 2020.
The Supreme Court had on March 23 dismissed the distinction earlier produced by the government amongst little and huge borrowers in the context of refunding compound interest accrued through the moratorium period. Analysts at Icra have estimated that the fresh refund physical exercise could be to the tune of an added Rs 7,500 crore for loans of more than Rs 2 crore. The relief currently extended to borrowers with loans up to Rs 2 crore has expense the exchequer an estimated Rs 6,500 crore, the agency mentioned final month.
“In order to ensure that the above judgment is implemented uniformly in letter and spirit by all lending institutions, methodology for calculation of the amount to be refunded/adjusted for different facilities shall be finalised by the Indian Banks Association (IBA) in consultation with other industry participants/bodies, which shall be adopted by all lending institutions,” the RBI mentioned in its notification.
The relief shall be applicable to all borrowers, like these who had availed of working capital facilities through the moratorium period, irrespective of no matter if moratorium had been totally or partially availed, or not availed. Lending institutions shall disclose the aggregate quantity to be the refunded or adjusted in their economic statements for the year ending March 31, 2021.
Asset classification of borrower accounts by all lending institutions following the above judgment shall continue to be governed by the extant guidelines.
Wednesday’s circular could come as a blow to banks and non-bank lenders, who claim to have not however received the reimbursement for the 1st round of compound interest refund, completed in November 2020. According to media reports, the IBA had requested the government to foot the bill for the second round of refund as effectively. Some bankers had been also hoping for a overview of the SC judgment.