Banks may move the Reserve Bank of India (RBI) to allow businesses and individuals availing working capital facilities more time to repay the interest in case they seek deferment of recovery of interest for three months under the Reserve Bank of India’s COVID-19 regulatory package.

Currently, entities who opt for deferment of recovery of interest for three months have to repay the deferred interest amount in the fourth month.

As per the frequently asked questions prepared by the Indian Banks’ Association (IBA), while the recovery of interest applied to Cash Credit/Overdraft (working capital facilities) on 31st March, 30th April and 31st May 2020 is being deferred, the entire interest must be recovered along with the interest being applied on 30th June 2020.

And in cases, where monthly interest is not being applied, the recovery will happen along with the next interest date.

To a specific question whether Businesses/Individuals will be in a position to payback the deferred interest in one go at the end of the fourth month, State Bank of India Managing Director C Sreenivasulu Setty, said this issue could be taken up by IBA with RBI as their cash conversion cycle could have deteriorated.

The Association said Businesses/Individuals may take the benefits under Banks’COVID package if there is a disruption in their cash flows or there is loss of income.

However, they must take into account that the interest on the loans, though not mandatorily payable immediately and gets postponed by 3 months, continues to accrue on their account and results in higher cost.

For example, if an enterprise has a loan outstanding of Rs 100,000 and the interest rate charged is 12 per cent, then every month it is liable to pay Rs. 1000 as interest. In case, the enterprise opts not to service the interest every month, it is liable to pay interest at 12 per cent and accordingly it will pay Rs. 3030.10 at the end of third month.

Similarly, in case the interest rate is 10 per cent, it is required to pay Rs. 833 p.m. or Rs. 2521 after three months.

ends

comment COMMENT NOW