SC order on interest waiver: PSU banks may have to take Rs 2,000cr hit – Times of India

NEW DELHI: Public sector banks may have to bear a burden of Rs 1,800-2,000 crore arising due to a current Supreme Court judgement on the waiver of compound interest on all mortgage accounts which opted for moratorium throughout March-August 2020, sources stated.
The judgement covers loans above Rs 2 crore as loans beneath this received blanket interest on interest waiver in November final 12 months. Compound interest assist scheme for mortgage moratorium price the federal government Rs 5,500 crore throughout 2020-21 and the scheme coated all debtors together with the immediate one who didn’t avail moratorium.
According to banking sources, initially 60% of debtors availed moratorium and progressively the proportion got here down to 40% and even much less as assortment improved with ease in lockdown. In case of company, this was as little as 25% so far as public sector banks have been involved.
They additional stated, banks would supply compound interest waiver for the interval a borrower had availed moratorium. For instance, if a borrower availed moratorium of three months, the waiver could be for that interval.
The RBI on March 27 final 12 months introduced a mortgage moratorium on fee of instalments of time period loans falling due between March 1 and May 31, 2020, due to the pandemic, later the identical was prolonged to August 31.
The apex courtroom order this time is barely restricted to those that availed moratorium so the legal responsibility of the general public sector financial institution must be lower than Rs 2,000 crore as per tough calculations, sources added.
Besides, they stated, the order doesn’t specify a timeframe for the settlement of compound interest not like final time so banks can devise a mechanism of adjusting or settling it in staggered method.
Meanwhile, Indian Banks’ Association (IBA) has written to the federal government to compensate lenders for interest on interest waiver.
The authorities would take a name relying on varied concerns.
The Supreme Court final month directed that no compound or penal interest shall be charged from debtors for the six-month mortgage moratorium interval, which was introduced final 12 months amid the Covid-19 pandemic, and the quantity already charged shall be refunded, credited or adjusted.
The apex courtroom refused to intervene with the Centre and Reserve Bank of India (RBI’s) resolution to not prolong the mortgage moratorium past August 31 final 12 months, saying it’s a coverage resolution.
Rejecting pleas for a whole waiver on interest the courtroom opined that such a transfer would have penalties on the financial system. The bench additionally stated that interest waiver would have an effect on depositors. Along with this, the courtroom additionally rejected pleas for additional reduction within the matter.

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