After the Supreme Court delivered its judgment in the loan moratorium case last week, lenders were particularly concerned about one specific detail. The court said that every borrower, regardless of the current loan, will be eligible for the compound interest waiver for the period from March to April. mint takes a closer look at how this additional benefit will affect lenders and why they seek government assistance.
How is this different from the last wave of waivers announced in October?
In October of last year, the government agreed to shoulder the burden of the compound interest exemption for personal and small business loans until ₹2 crore. This waiver concerns interest payments during the moratorium period from March to August. The Reserve Bank of India (RBI) had authorized such a deferral of repayment to help borrowers overcome the negative impact of covid-19 which has left millions unemployed.
What was the first reaction of the bankers?
The Association of Indian Banks (IBA), a lobbying body representing the interests of banks, has written to the government demanding repayment of the compound interest that must be returned to borrowers. This was after the proposal was approved at the IBA’s management committee meeting last week. Bankers said they would not be able to return the money without government help as it would hurt their bottom line. That aside, the government informed the Supreme Court in October last year that “it is impossible for banks to bear the burden resulting from waiving compound interest without passing on the financial impact to depositors or affecting negatively their net worth ”.
How did the government react to this request?
Reports indicate that the government is reluctant to accept the additional waiver bill, estimated at around ₹7,500 crore, although a final decision is awaited.
What is the status of the first round of waiver refunds?
Interestingly, non-bank financial corporations (NBFCs) have yet to receive their share of repayments in the first waiver cycle. The banks said they were also in the process of obtaining it. The State Bank of India (SBI) has been appointed the nodal agency responsible for collecting and settling dues from all lenders after submitting their claims by December 15. Raman Agarwal, co-chair of the Financial Industry Development Council (FIDC), the industry body of the NBFC, told reporters last week that non-bank financiers had filed their grievances with the SBI and had not heard talk about no refund. The first round was expected to cost the government close to ₹6500 crore. SBI also refused to part with data on the amount of reimbursement claims received. A Right to Information Request (RTI) filed by mint was dismissed, citing exemptions under section 8 (1) (d) of the RTI Act of 2005.
What do experts think of the waiver bill?
Analysts at Emkay Research said a section of bankers suggested the IBA, Reserve Bank of India or the government should file a writ petition challenging the court directive. Care Ratings said in a note that if the government reimbursed this amount to banks, there would be no impact on banks, but affected borrowers would receive significant relief.