Home >News >India >Lenders to put in place a board approved policy to refund compound interest: RBI

MUMBAI : The Reserve Bank of India on Wednesday said that all lending institutions should put in place a board approved policy to refund/adjust the interest on interest charged to borrowers during the six month moratorium period. RBI also said that all lending institutions must disclose amount to be refunded in their financial statements for fourth quarter of fiscal year 2021.

“In order to ensure that the above judgement 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," RBI said in a notification.

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RBI also added that this relief will be applicable to all borrowers, irrespective of whether moratorium had been fully or partially availed, or not availed.

Last month, the Supreme Court said all borrowers, irrespective of how much they owed, are eligible for a waiver of the compound interest—or interest on interest. During the petition the government had agreed to foot the bill for a compound interest waiver for loans upto 2 crore. Rating agency Icra Ltd estimates that the additional burden on the government will be about 7,000-7,500 crore if it reimburses lenders for the compound interest waiver. This is over and above the 6,500 crore it shelled out in the first round for smaller loans.

RBI had on 27 March last year announced a loan moratorium scheme following the covid-19 outbreak, allowing lending institutions to grant temporary relief on payment of instalments of term loans falling due between 1 March and 31 May 2020. This moratorium was later extended till 31 August.

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