Economy

Interest on interest refunds: Lenders make provisions in Q4FY21

Surabhi Mumbai | Updated on April 29, 2021

The IBA recently finalised a uniform methodology for refund or adjustment, as per the Supreme Court judgement

Post the announcement of fourth quarter results by banks and finance companies, it has come to light that many have made provisions for refunding the interest on interest on the loan moratorium to all borrowers.

Private sector lender HDFC Bank has kept aside ₹500 crore for interest on interest provisions while ICICI Bank said it has provided ₹175 crore for the purpose. For Axis Bank, the estimated impact of the interest on interest refund is ₹160 crore.

Mahindra Finance has kept aside ₹32 crore for this purpose.

In its fourth quarter results, PNB Housing Finance had said that the methodology for calculation of the amount of such 'interest on interest' has been recently circulated by the IBA.

“The company is in the process of suitably implementing this methodology and has created a liability towards estimated interest relief and reduced the same from the interest income for the year ended March 31, 2021,” it had said.

In a recent note, ICICI Securities had said that the waiving ‘interest on interest’ on loans above ₹2 crore during the moratorium period on all loans will lead to a fresh burden of ₹11,200 crore on the industry. This will include about ₹3,200 crore for private banks and small finance banks, ₹5,500 crore for public sector lenders and ₹2,000 crore for all NBFCs and housing finance companies, it had said.

IBA finalises methodology

While some lenders have sought clarifications, the IBA has recently finalised the uniform methodology for refund or adjustment as per the Supreme Court judgement.

Under the norms, borrower accounts which were standard as on February 29, 2020 including SMA-0, SMA-1 and SMA-2 will be eligible for the refund. All loans, working capital, trade products, which had outstanding during the moratorium period shall be considered.

The Supreme Court, in its judgement in March, had ruled that all borrowers will be eligible for waiver of interest on interest for the loan moratorium due to the Covid-19 pandemic.

On April 7, the Reserve Bank of India had asked all lenders to compensate borrowers for the interest on interest during the moratorium whether they had taken the moratorium or not. Earlier, the Centre had picked up the tab for waiver of interest on interest for loans up to ₹2 crore.

Published on April 29, 2021

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