Interest repayment: Banks want government to choose tab on loans over 2 crore
The banks want the government to take over the repayment of amounts already recovered from borrowers, including those with loans over ₹ 2 crore, in the form of interest / compound interest / penal interest for the moratorium period of six. months linked to the pandemic.
Supreme Court judgment
This follows the Supreme Court ruling on March 23 in Small Scale Industrial Manufactures Association v Union of India et al.
Bankers fear that if they have to foot the bill for the aforementioned reimbursement, their bottom line will be affected.
Therefore, the banks, under the auspices of the Association of Indian Banks (IBA), are considering asking the Ministry of Finance to expand the scope of its “Scheme for granting ex gratia payment of the difference between compound interest and straightforward interest for six months to borrowers in specified loan accounts (March 1, 2020 to August 31, 2020) ‘to cover even loans over 2 crore.
This means that the banks want the government to shoulder the burden of repayment, estimated at around 7,000 crore to 7,500 crore.
In accordance with the judgment of the SC: “There will be no charge of interest / compound interest / penal interest for the period during the moratorium and any amount already collected under the same title, namely interest interest / interest Penalties / compound interest will be repaid to the affected borrowers and be credited / adjusted at the next installment of the loan account.
Anil Gupta, Vice President – Financial Sector Ratings, ICRA, noted that the government had previously announced relief for borrowers with loans of up to 2 crore, which was estimated to be around 6,500 crore. for the Public Treasury.
With the announcement of the waiver for all borrowers, he estimated that additional relief of around 7,000 to 7,500 crore will need to be provided to borrowers.
The ex gratia payment under the October 2020 scheme covered borrowers with sanctioned limits and outstanding amounts of up to 2 crore (total of all facilities with credit institutions) as of February 29, 2020. The main condition to receive this payment was that the loan account should have been standard on that date.
Categories of loans covered
Eight categories of loans – micro, small and medium-sized enterprises, education, housing, consumer durables, credit card contributions, automobiles, personal loans to professionals and consumer loans – were covered by the scheme.
Political analyst Hari Hara Mishra observed that the additional interest burden on banks for the extension (interest reimbursement on interest / compound interest / penal interest) to all eligible loans during the moratorium period should be treated as a relief measure during disaster management.
He stressed that this burden should be borne by the government, as the banks will have continued to assume compound liability to serve the interests of depositors during the corresponding period.
Banking expert V Viswanathan warned that, “If the banks take the note, it will be cited as a precedent, which can be relied on later by any borrower.
“This is why the ex gratia program has been implemented (for loans up to 2 crore) by the government so that it is not cited as a precedent against the banks.”
He held that if the government does not extend the ex gratia payment to loans above ₹ 2 crore, private banks can file a review petition with the SC.
Meanwhile, the Association of Indian Banks has advised banks that the moratorium period (March 1, 2020 to August 31, 2020) should be excluded to calculate the number of days to decide on non-performing asset (NPA) status. according to prudential standards. This regardless of whether or not the moratorium has been requested by the borrower.
Referring to the aforementioned notice, Viswanathan said, “Suppose you did not exercise a moratorium on February 29, 2020 and paid six installments during the moratorium period.
“Subsequently, if your ability to repay the loan has been compromised, banks may consider these six installments to be prepayments from September 2020 to February 2021, thus avoiding classification as NPA. In addition, the credit rating of borrowers will remain intact.