According to news reports, public sector banks could face a bill of Rs 1,800-2,000 crore as a result of a recent Supreme Court’s decision which mentions about waiving compound interest on all loan accounts, that choose a moratorium period between March and August 2020. The ruling only applies to loans of more than Rs 2 crore, as loans of less than this amount received a blanket interest-on-interest waiver in November last year. The government spent Rs 5,500 crore on a compound interest support scheme for loan moratorium in 2020-21, which included all borrowers, including those who were prompt but did not take advantage of the moratorium.
According to the bank reports, initially 60% of borrowers took advantage of the moratorium, however as collection, a huge umber improved with ease in lockout, the figure dropped to 40% and even below. In the case of companies, that was as little as 25% in the case of public sector banks. They went on to claim that banks would waive compound interest for the period, a creditor has a moratorium. For Example, if a creditor requests for a three-month of suspension, the relief will be for that particular time frame.
Due to the COVID-19 pandemic, the RBI declared a loan moratorium on payment of instalments of term loans due between March 1 and May 31, 2020 on March 27 last year, which was later extended to August 31. According to reports, the supreme court’s order this time, is only restricted to those who demanded a moratorium, so the public sector bank’s liability should be less than Rs 2,000 crore. Furthermoreunlike last time, the order does not prescribe a deadline for compound interest payment, allowing banks to formulate a mechanism for modifying or resolving it in a phased manner. In the meantime, the Indian Banks’ Association (IBA) has written to the government, requesting compensation for interest-on-interest waivers.
The government will make a decision based on a variety of factors. The Supreme Court ruled last month that borrowers would not be paid compound or punitive interest during the six-month loan moratorium period, which was declared last year in the wake of the Covid-19 pandemic, and that any amounts already charged would be refunded, forgiven, or adjusted. The Supreme Court said the decision by the Centre and the Reserve Bank of India (RBI) for not to extend the loan moratorium beyond August 31 last year, was a policy decision. The court denied demands for a full waiver of interest, arguing that such a move would have detrimental economic implications. The court also stated that the interest waiver would have an effect on depositors. In addition, the court turned down appeals for further relief in the case.
