Centre asks banks to foot the bill for interest-on-interest 

According to sources in the ministry, bankers had approached  the Department of Financial Services seeking a bailout, or at least a way to share the burden.

Published: 23rd April 2021 11:46 AM  |   Last Updated: 23rd April 2021 11:46 AM   |  A+A-

Bank, Banks

For representational purpose. (Photo | PTI)

Express News Service

NEW DELHI:  While Indian bankers had approached the Union finance ministry for support in making the interest-on-interest payments arising out of the Supreme Court’s order in the loan moratorium case, the ministry has categorically told them that banks would have to foot the Rs 8,000 crore bill and that the government was, by no means, going to bear the cost. Neither fully, nor partially. 

According to sources in the ministry, bankers had approached  the Department of Financial Services seeking a bailout, or at least a way to share the burden. However the DFS turned down the request and advised them to go ahead with making the payments. 

“Currently the finance ministry is not going to pay for it. Banks have to bear the cost. This is nothing new. They were informed well in advance. Both the government and the central bank is together in this,” a senior official from the Department of Financial Services told this publication. 

The Supreme Court had ruled on March 23 that banks could not charge interest-on-interest for accounts that had sought a moratorium last year, and that the amount so collected must be refunded to the loan account. According to reports, banks will have to pay Rs 8,000 crore they had collected during the moratorium period to customers. 

After being turned down by the DFS, bankers had also approached the central bank. However, sources said that the RBI was not inclined to mediate in the matter and has told the banks to work as per the directives of the Supreme Court.

In October 2020, the government had announced a scheme to waive compound interest for loans below `2 crore in an effort to give relief to small businesses and lenders. This covered education, housing, auto, consumer durable loans, loans advanced to MSMEs, and credit card dues.

According to bankers, while most banks have provided for this cost, the recent surge in the Covid cases has raised concerns. “We will wait till the first week of May to see how the curve is looking and whether there is need for another moratorium, just in case,” a senior banker from a private sector bank said. 


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