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Loan moratorium: Centre asks banks to foot 'interest
on interest' bill
Banks have been told that they can also adjust the amount against future liabilities for all accounts
The Union finance ministry has informally told banks to reimburse or adjust the compound interest they charged
customers in line with the Sup reme Court’s order asking them to refund “interest on interest” collected from acco -
unts that sought a moratorium.
Banks have been told that they can also adjust the amount against future liabilities for all accounts, irrespective of
whether they opted for the moratorium or not, similar to the scheme the government announced for loans up to Rs
2 crore, said an official aware of the development.
However, banks are thinking of making a representation to both the Reserve Bank of India (RBI) and the Centre
through the Indian Banks’ Association (IBA). The IBA approached the government last month asking it to enh ance
the scope of the scheme for ex-gratia payment of the difference between compo und interest and simple interest, to
cover the additional refund arising out of the Sup reme Court’s order. The government hasn’t shown any inclination
to compensate ba nks for the compound inte rest waiver, estimated at aro und Rs 8,000 crore, the official said.
Of this Rs 8,000 crore, private banks’ share is about 37 percent and that of public sector banks around 60 percent,
said Anil Gupta, vice president, and sector head – financial sector ratings at ICRA. The banks have to adjust the
penal interest in the next installment in April.
The lenders have also asked the IBA to approach the Department of Financial Services as their balance sheets
are stretched. The Supreme Court on March 23 ruled that banks cannot charge interest on interest for accounts
that sought a moratorium last year and the amount so collected must be refunded in the next installment of the