Money & Banking

‘Put in place policy to refund/ adjust interest on interest charged during moratorium period’

Our Bureau. Mumbai | Updated on April 07, 2021

The Reserve Bank of India (RBI) has asked lenders to disclose the aggregate ‘interest on interest’ amount to be refunded/ adjusted in respect of their borrowers in their financial statements for the year ending March 31, 2021.

The follows the Supreme Court’s judgment last month directing banks and financial institutions to refund the compound interest (interest on interest or penal interest) collected on EMIs during the Covid-19 pandemic-related loan moratorium period, from March 1, 2020, to August 31, 2020, in the matter of Small Scale Industrial Manufacturers Association vs UOI & Ors and other connected matters.

As per RBI’s circular on ‘Asset Classification and Income Recognition following the expiry of Covid-19 regulatory package’, all lending institutions have to immediately put in place a board-approved policy to refund/ adjust the ‘interest on interest’ charged to the borrowers during the moratorium period in conformity with the above judgment.

“In order to ensure that the above judgment is implemented uniformly in letter and spirit by all lending institutions, methodology for calculation of the amount to be refunded/ adjusted for different facilities shall be finalised by the Indian Banks Association (IBA) in consultation with other industry participants/ bodies, which shall be adopted by all lending institutions,” said the RBI.

The above reliefs will 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, it added.

The central bank said asset classification of borrower accounts by all lending institutions following the above judgment shall continue to be governed by the extant instructions.

Published on April 07, 2021

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