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 ₹ 1,800-2,000 crores arising due to Supreme Court’s decision on 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 received blanket interest on interest waiver in November last year. The cost of the Compound Interest Assistance Scheme for loan moratorium was with the government during ₹ 5,500 crore by 2020-21 and the scheme covered all 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 even less collections improved and ease of lockdown. In the case of corporate, it was as low as 25% as far as public sector banks were concerned.

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.

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

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