NEW DELHI: Following the Supreme Court order allowing a compound interest waiver for all loans during the moratorium period last year, the Indian Banks’ Association (IBA) has shot off a letter to the Finance Ministry requesting the government to shoulder the burden of refunding interest-on-interest for loans larger than Rs 2 crore. The burden is expected to come up to Rs 7,500 crore.
The association has asked banks to refund any compound interest or penal interest collected by them. In a letter dated March 26, IBA also told banks that it will ask the government to compensate lenders for the refund payable.
Banks, accounting for 70 per cent of the loan market, have operating profits of over Rs 3 lakh crore. “So, that way Rs 7,000 crore on Rs 3 lakh crore will be like two per cent of their operating profits,” Anil Gupta, Vice President-Financial Sector Ratings, ICRA Ltd said. Meanwhile, banks are seeking to enhance the scope of the October 2020 scheme granting ex-gratia payment for borrowers to loans above Rs 2 crore too. But speculation is rife that the government might not compensate lenders this time.
If the government does not do so, banks may file a review petition in the SC. “As per our discussion with bankers, they suggest that IBA (Indian Banks’ Association)/RBI/Govt should file a writ petition challenging the court directive to waive interest on interest on loans of over Rs 2 crore (except for consolidated exposure),” analysts at Emkay Global Financial Services said.
Bankers believe that the interest waiver relief should be extended only to small retail and enterprise borrowers, who are most affected by the pandemic, and not to large borrowers, who have better repayment capacity and are also eligible for other relief measures such as restructuring.Meanwhile, bankers are yet to get ex-gratia from first round. “We have filed our claims through the nodal agency SBI but all the claims are lying with the government. We also haven’t heard of anybody yet being reimbursed. They are processing; it’s going to take some time,” said a banker requesting anonymity.
‘Refund interest collected during period’
The Indian Banks Association has asked banks to refund any compound interest or penal interest collected by them. In a letter dated March 26, IBA also told banks that it will ask the government to compensate lenders for the refund payable