After the Supreme Court pronounced its judgement in the loan moratorium case last week, lenders were particularly concerned about one specific detail. The court said every borrower, irrespective of the outstanding loan, will be eligible for the compound interest waiver for the March-April period. Mint takes a closer look at how this additional benefit will affect lenders and why they are seeking government aid.
How is this different from the last round of waiver announced in October?
In October last year, the government had agreed to bear the burden of compound interest waiver for retail and small business loans up to ₹2 crore. This waiver pertains to interest payments during the moratorium period of March to August. The Reserve Bank of India (RBI) had allowed such a repayment deferment to aid borrowers tide over the adverse impact of covid-19 that left millions jobless.
What was the first reaction from bankers?
The Indian Banks’ Association (IBA), a lobby body representing the interests of banks, wrote to the government seeking reimbursement of the compound interest that has to be returned to borrowers. This was after the proposal was agreed upon in IBA’s managing committee meeting last week. Bankers said they would not be able to return the money without government help as it would dent their profitability. That apart, the government had informed the Supreme Court in October last year that “it is impossible for banks to bear the burden resulting from waiver of compound interest without passing on the financial impact to the depositors or affecting their net worth adversely".
How did the government react to this request?
Reports indicate that the government is reluctant to take on the additional waiver bill, estimated at around ₹7,500 crore, although a final decision is awaited.
What is the status of the first round of waiver reimbursements?
Interestingly, non-banking financial companies (NBFCs) are yet to receive their share of reimbursements in the first round of waiver. Banks said they are in the process of getting it as well. State Bank of India (SBI) was appointed the nodal agency for collating and settling dues for all lenders after they submitted their claims by 15 December. Raman Agarwal, co-chairman at NBFC industry body Finance Industry Development Council (FIDC) told reporters last week that non-bank financiers have filed their claims through SBI and have not heard of anybody yet being reimbursed. The first round was expected to cost the government nearly ₹6,500 crore. SBI also refused to part with the data on the quantum of reimbursement requests it received. A Right to Information (RTI) query filed by Mint was dismissed, citing exemptions under Section 8(1)(d) of the RTI Act 2005.
What do experts think of the waiver bill?
Analysts at Emkay Research said a section of bankers suggest that IBA, Reserve Bank of India or the government should file a writ petition challenging the court directive. Care Ratings said in a note that if the government refunds this amount to the banks, there would be no impact on the banks but affected borrowers would receive significant relief.
