SC order on interest waiver: PSU banks may have to bear a loss of ₹ 2,000 crore

Sources said that public sector banks may have to bear the burden of Rs 1,800-2,000 crore arising out of the Supreme Court ruling on the waiver of compound interest on all loan accounts selected for deferral during March-August 2020.

The judgment involves loans above ₹ 2 crore as loans below it were blanketed on interest waiver in November last year. The cost of the Compound Interest Assistance Scheme for loan moratorium was to the government during the ₹ 5,500 crore 2020-21 and the scheme covered all the borrowers, one of whom did not avail the moratorium.

According to banking sources, 60% of the borrowers initially took advantage of the moratorium and gradually this percentage was reduced to 40% and collection improved with ease of lockdown. In the case of corporate, it was as low as 25% of public sector banks.

He further said, banks will provide compound interest waiver for the period when the borrower availed the moratorium. For example, if a borrower has granted a moratorium of three months, there will be an exemption for that period.

The RBI had announced a moratorium on payment of term loan installments due to the epidemic on March 27 last year between March 1 and May 31, which was later extended to August 31.

Sources said that this order of the apex court is limited to only those who had taken advantage of the postponement, so the liability of the public sector bank should be less than ₹ 2,000 crore, which according to rough calculations.

Further, he said, this order does not specify a time limit for disposal of compound interest as compared to the previous time, so banks can devise mechanisms to adjust or settle it.

Meanwhile, the Indian Banks Association (IBA) has written to the government to give compensation to the lenders for the interest waiver.

The government will call based on various considerations.

The Supreme Court last month directed that no compounding or punitive interest be charged from borrowers for the six-month loan moratorium period announced last year amid the COVID-19 pandemic, and that the previously recovered amount is refunded, deposited or Will be adjusted. .

The apex court refused to extend the decision of the Center and the Reserve Bank of India (RBI) from August 31 last year, saying it was a policy decision.

Dismissing the petition for full pardon on interest, the court said that such a step would have consequences on the economy. The bench also said that the waiver of interest would affect the depositors. Along with this, the court also dismissed the petition for further relief in the case.