Who Will Bear the Cost of Rs 7.5K Interest Reversal Payments for Banks?

  • Investing.com
  • Stock Market News
Who Will Bear the Cost of Rs 7.5K Interest Reversal Payments for Banks?
Credit: © Reuters.

By Aditya Raghunath

Investing.com -- The IBA (Indian Banks Association) has asked its member banks to not include the moratorium period while calculating the number of days for non-payment of a loan. It has also asked its members to repay the compound interest paid by borrowers.

The Supreme Court judgment on the loan moratorium said if banks charge interest on interest during the 6-month moratorium period, it will amount to penal interest on the borrowers.

“The moratorium period (March 1-August 31, 2020) to be excluded for reckoning number of days for deciding NPA status under prudential norms. This is regardless of whether the moratorium was requested or not by the borrower,” the IBA told its members.

The total cost of the compound interest or interest-on-interest waiver is expected to cost the banks Rs 7,500 crore. IBA has said that it will approach the government to cover this cost. However, media reports say that it is unlikely that the government will cover these charges.

If the government doesn’t cover these charges, banks’ profitability will be hit. Banks have indicated that they will likely make provisions for this in their books in the current financial year even though the payouts will only happen in April 2021.

Bank Nifty is trading up 1.35% at the time of this report.

Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

Error: File type not supported

Drop an image here or

100

Related Articles