Banks to get reimbursed for compound interest

Banks are relieved at the government notification waiving off only compounded interest as it will restrict their losses without burdening the fiscal much. The Reserve Bank of India (RBI) issued a notification directing banks to follow the government order reimbursing small borrowers with loans up Rs 2 crore that have paid compounded interest on their loans between March 1 and August 31.

Bankers said the government’s clarity and its notification committing to bear the difference between the rates have lifted a major over hang over banks.

“This issue has now been taken care off. The fact that the government has given a timeline for crediting the losses to banks is very positive because at one time we were not sure of what the court would say and whether we will have to bear the burden,” said a bank CEO.

Banks have to credit customer accounts by November 5 and raise a request for reimbursement from the government through the State Bank of India which the government has appointed as the nodal bank. Banks will have to seek reimbursement from the government through the State Bank of India, the nodal bank appointed by the government for this purpose. Banks will be credited the difference by December 15.

Analysts said the government order and the subsequent RBI notification clears a big overhang on banks.

“Already some banks and NBFCs in their results commentary have indicated that they have proactively provided for the interest on interest, which would result in a writeback once government reimburses.