Home >Industry >Banking >Lenders to seek govt help to fund interest waivers

Banks plan to ask the government to foot the bill for the upcoming round of compound interest waivers, estimated to be 7,500 crore, following Tuesday’s Supreme Court ruling on the loan repayment moratorium.

Paying from their pockets could dent the profitability of banks, said a person aware of the development.

“It is impossible for banks to bear the burden resulting from waiver of compound interest without passing on the financial impact to depositors or affecting their net worth adversely," the government had informed the top court in October.

The top court on Tuesday said the benefit of a waiver of compound interest, or interest on interest, should be available to all borrowers, irrespective of how much of their loan was outstanding.

In October, the government had announced that retail and small business loans of up to 2 crore will get the benefit of compound interest waiver. This waiver pertains to interest payments during the moratorium period of March to August 2020.

The Reserve Bank of India (RBI) had allowed the repayment deferment to help out borrowers following the coronavirus outbreak that left millions jobless and facing loss of earnings.

“While we will request the government to pay for this round as well, I don’t think the bill will be too high. Lenders will take it up with the Indian Banks’ Association (IBA) at the next managing committee meeting soon enough," said the person mentioned above.

There is still a great deal of uncertainty over the second round of compound interest waiver. Some expect the government to pay for it, while others are not sure.

The first round of compound interest payment waiver that is estimated to have cost 6,500 crore was announced in October 2020.

Analysts are sceptical as well, given that the government specifically agreed to allow small businesses and retail borrowers to avail of the waiver benefit.

“In such a situation there will be a direct impact on lender’s profitability as the same would not have been envisaged. Banks may seek government support to manage the impact," said Dnyanesh Pandit, managing director (financial services) at consulting firm Protiviti India.

Non-banking financial companies are yet to receive their share of reimbursements of the first round of waiver. SBI was appointed the nodal agency for collating and settling dues for all lenders after they submitted claims by 15 December.

“We have filed our claims through SBI, which was the nodal agency, and all claims are lying with the government. We haven’t heard of anybody yet being reimbursed. They are processing. It’s going to take some time," said Raman Agarwal, co-chairman at NBFC industry body Finance Industry Development Council (FIDC).

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