RBI asks lenders to repay interest on interest to all borrowers for 6 month moratorium period

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The Reserve Bank of India (RBI) has asked all banks and non-banks to repay interest on interest to all borrowers for the six-month moratorium period that ended on August 31, 2020.

The central bank also clarified that the classification of assets in borrower accounts by all credit institutions following the Supreme Court ruling should continue to be governed by existing instructions as follows:

  • For borrowers who have not taken advantage of the moratorium, banks should follow existing standards for income recognition and asset classification.
  • For accounts that have been granted a moratorium, lenders should remove the period from March 1 to August 31, 2020 for asset classification.
  • For the period beginning September 1, 2020, lenders must follow the classification of assets according to the standards in force.

The notification further added that all lending institutions should immediately put in place a board approved policy to repay or adjust “interest on interest” charged to borrowers during the moratorium period, i.e. – say from March 1 to August 31, 2020 in accordance with the judgment of the Supreme Court. .

Last month, the Supreme Court banned banks from charging interest on interest or penal interest on any borrower during the loan moratorium period. He says: “… there should be no interest on interest or penalty interest on installments that were due during the loan moratorium period from March 1 to August 31, 2020 for any borrower, regardless of the amount. of the loan. If this interest has already been collected, it must either be reimbursed to the borrower or adjusted on the next installments. ”

RBI states: “In order to ensure that the above judgment is implemented in a uniform manner in letter and spirit by all credit institutions, the methodology for calculating the amount to be repaid or adjusted for different facilities must be finalized by the Indian Banks Association (IBA) in consultation with other participants and industry bodies, to be adopted by all credit institutions.

“Borrowers who took advantage of the working capital facilities during the moratorium, whether or not they took advantage of the moratorium, should also receive repayments or an adjustment. Lenders must disclose the total amount of interest on interest repaid or adjusted by them in their financial statements for fiscal year 21, ”RBI said in a notification.

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