Lenders want govt to offer moratorium interest relief to borrowers

Waiver may cost banks Rs 10,000 cr, says IBA

A waiver of compound interest payments during the six-month loan moratorium period will cost banks close to Rs 10,000 crore, according to submissions made by lenders to the committee headed by former comptroller and auditor general (CAG) Rajiv Mehrishi.

The panel, formed by the government earlier this month, was mandated to measure the impact of waiving interest and interest on interest on the national economy and financial stability. It was also supposed to give suggestions to mitigate the “financial constraints of various sections of society” amid Covid-19.

The Indian Banks’ Association (IBA) has told the committee that instead of a waiver, it may ask the government to provide relief to borrowers, people who are part of the deliberations said.

Sources said the committee had submitted its report to the finance ministry, which had set it up on September 10 during the course of an ongoing petition in the Supreme Court. The petition has challenged the levy of interest on loans by banks during the moratorium period. When contacted, Mehrishi declined to comment.

 

 

“The compounding of interest is a normal practice being followed by banks in case of 90 per cent of depositors, and on a monthly basis. It’s a basic principle of banking. Till date, the relief package in case of any natural calamity has come from the government and it should be the case here, too,” a banking industry executive aware of the deliberations said.

Banks told the committee that the Reserve Bank of India (RBI) had allowed the restructuring of loans, which could be availed by borrowers, including the industry, on a case-to-case basis to deal with Covid-19-related stress, and that was the best the financial system could offer as a relief measure.

“Any waiver on compound interest payments will spoil the financial culture. It will also be unfair to those who didn’t avail the moratorium facility and repaid on time during the pandemic as they will not benefit from any loan interest waiver,” the executive added.

The plea, filed by Agra resident Gajendra Sharma, in the Supreme Court has demanded the waiver of interest charged by banks on the instalments deferred for repayment by the RBI through moratorium. A number of industrial bodies have joined the cause with the original petition, demanding the waiver of interest, or waiver of interest on interest, on the suspended monthly instalments.

Last Thursday, the court had passed an order giving the Centre and the RBI two weeks to submit a final proposal on a solution to the loan moratorium case, while extending its interim order to direct that no account be declared a non-performing asset until further directions from the three-judge Bench.

The next hearing by the Supreme Court Bench, led by Justice Ashok Bhushan, will take place on September 28.