RBI asks banks to implement “interest on interest” reimbursement policy

Bombay, April 7 (IANS): The Reserve Bank of India (RBI) ordered all banks and NBFC to immediately put in place a board approved policy to reimburse or adjust the “interest on interest” charged to borrowers during the moratorium period of 1 March to August 31, 2020.

In a major relief for large borrowers, the Supreme Court ruled last month that no penal or compound interest would be charged on loans, including those over Rs 2 crore, during the six-month moratorium announced by the government in the context of the Covid-19 pandemic.

In a notification to all commercial banks and other financial institutions, the RBI said: “All lending institutions should immediately put in place a Board approved policy to repay / adjust the ‘interest on interest’ charged to borrowers during the moratorium period, ie From March 1, 2020 to August 31, 2020 in accordance with the above judgment. “

In order to ensure that the Supreme Court judgment is implemented in a uniform manner in letter and spirit by all credit institutions, the methodology for calculating the amount to be repaid or adjusted for the different facilities must be finalized by the Indian Banking Association (IBA) in consultation with other participants and industry bodies, which will be adopted by all lending institutions, he added.

He noted that the relief will be applicable to all borrowers, including those who have used working capital facilities during the period of the moratorium, whether or not the moratorium has been fully or partially used.

Credit institutions must disclose the total amount to be repaid or adjusted for their borrowers on the basis of the above reliefs in their financial statements for the year ending March 31, 2021.

Banks may have to shell out around Rs 8,000 crore to borrowers due to default interest.