The RBI on Wednesday asked banks and NBFCs to immediately put in place a board-approved policy to refund/adjust the ‘interest on interest’ charged to the borrowers during the six-month moratorium, in conformity with the Supreme Court judgement last month.
As part of the COVID-19 regulatory package, the RBI had allowed lending institutions to grant a moratorium on payment of instalments of term loans falling due between March 1 and May 31 of last year. The moratorium was extended by three months till August 31.
Referring to the judgement of Supreme Court dated March 23, 2021, the RBI in a circular on Wednesday said: “All lending institutions shall immediately put in place a Board-approved policy to refund/adjust the interest on interest’ charged to the borrowers during the moratorium period, i.e. March 1, 2020, to August 31, 2020…”
The apex court had directed that no compound or penal interest will be charged for the six-month moratorium announced last year amid the COVID-19 pandemic and the amount already recovered is to be refunded or adjusted in the next instalment of the loan account.
The RBI further said in order to ensure that the judgement is implemented uniformly in letter and spirit, methodology for calculation of the amount to be refunded/adjusted for different facilities should be finalised by the Indian Banks Association (IBA) in consultation with other industry participants/bodies, which “shall be adopted by all lending institutions”.
The “reliefs shall be applicable to all borrowers, including those who had availed of working capital facilities during the moratorium period, irrespective of whether moratorium had been fully or partially availed, or not availed” said the circular on ‘Asset Classification and Income Recognition following the expiry of Covid-19 regulatory package’.
The central bank also said lending institutions should disclose the aggregate amount to be refunded/ adjusted in respect of their borrowers based on the reliefs in their financial statements for the year ending March 31, 2021.