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MUMBAI : India’s largest private lender HDFC Bank on Saturday said it has set aside 500 crore as provisions to cover the Supreme Court-directed compound interest refund to all borrowers during the March-August period.

Srinivasan Vaidyanathan, chief financial officer of the bank, told analysts that while the Indian Banks’ Association (IBA) is still working out the methodology of computing the refund, the bank has set aside 500 crore in provisions.

Mint had reported that while the banking sector lobby body IBA requested the government to reimburse them for the compound interest waiver, the government is not too keen. It is estimated that the waiver bill would be in the range of 7,000-7,500 crore. To be sure, the government has borne the waiver cost of 6,500 crore for borrowers of up to 2 crore in certain sectors announced last October.

The government had announced that retail and small business loans up to 2 crore will get the benefit of compound interest waiver during the moratorium period of March to August. The moratorium announced to help borrowers tide over the covid-induced crisis ended on 31 August. However, last month the Supreme Court said that that there is no rationale in the policy to limit the benefit of waiver only to loan categories of up to 2 crore and asked banks to waive compound interest in that period for all borrowers.

HDFC Bank on Saturday reported a 18.1% year-on-year (y-o-y) rise in net profit for the three months to March to 8,186.5 crore. However, its profit was lower than 8,436 crore estimated by a Bloomberg poll of 14 analysts.

Saying that the economic impact of the second covid-19 wave seemed to be less adverse than the first one, the bank’s management said it has already completed another round of stress test on its books.

“Based on the current situation, should a financial impact manifest, we are currently in the process of finalising various stress tests which we have already completed. I do not want to put those results out just now because they might be unnecessarily over-conservative as were when we did it last time and we had to actually revise the stress test numbers," said Jimmy Tata, chief credit officer, HDFC Bank.

Tata added that the reason for HDFC Bank’s initial conservatism last time, perhaps, was that it did not know what the government and RBI were going to do.

“We would expect that if the medical condition manifests into an economic condition, there will be similar levels of assistance coming in from the government and then if you look at our portfolio and client, we will hope not to have any serious consequences ourselves," he added.

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