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Banks urged to put in place policy on 'interest on interest' refund
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SME Times News Bureau | 07 Apr, 2021
The Reserve Bank of India (RBI) has directed all banks
and NBFCs to immediately put in place a board-approved policy to refund
or adjust the 'interest on interest' charged to borrowers during the
moratorium period of March 1 to August 31, 2020.
In a major
relief to big borrowers, the Supreme Court last month ruled that no
penal or compound interest would be charged on any loans, including
those above Rs 2 crore, during the six month moratorium announced by the
government against the backdrop of the Covid-19 pandemic.
In a
notification to all commercial banks and other financial institutions,
the RBI said: "All lending institutions shall immediately put in place a
Board-approved policy to refund/adjust the 'interest on interest'
charged to the borrowers during the moratorium period, i.e. March 1,
2020 to August 31, 2020 in conformity with the above judgement."
In
order to ensure that the Supreme Court judgement is implemented
uniformly in letter and spirit by all lending institutions, methodology
for calculation of the amount to be refunded or adjusted for different
facilities shall be finalised by the Indian Banks Association (IBA) in
consultation with other industry participants and bodies, which shall be
adopted by all lending institutions, it added.
It noted that the
reliefs shall be applicable to all borrowers, including those who had
availed of working capital facilities during the moratorium period,
irrespective of whether moratorium had been fully or partially availed,
or not availed.
Lending institutions shall disclose the aggregate
amount to be refunded or adjusted in respect of their borrowers based
on the above reliefs in their financial statements for the year ending
March 31, 2021.
Banks may have to shell out about Rs 8,000 crore towards the borrowers on account of moratorium interest.
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