Supreme Court order on interest waiver: PSU Banks may have to take Rs. 2,000 crore

Public sector lenders may have to bear a burden of Rs. 1,800-2,000 crore arising due to a recent Supreme Court judgement on the waiver of compound interest on all loan accounts which opted for moratorium during March-August 2020.

The judgement covers loans above Rs. 2 crore as loans below this got blanket interest on interest waiver in November, 2020. Compound interest support scheme for loan moratorium cost the government Rs. 5,500 crore during 2020-21 and the scheme covered all borrowers including the prompt one who did not avail moratorium.

According to banking sources, initially 60% of borrowers availed moratorium and gradually the percentage came down to 40% and even less as collection improved with ease in lockdown. In case of corporate, this was as low as 25% as far as public sector banks were concerned.

They further said, banks would provide compound interest waiver for the period a borrower had availed moratorium. For example, if a borrower availed moratorium of three months, the waiver would be for that period.

The RBI on March 27, 2020 announced a loan moratorium on payment of instalments of term loans falling due between March 1 and May 31, 2020, due to the COVID-19 pandemic, later the same was extended to August 31, 2020.

The apex court order this time is only limited to those who availed moratorium so the liability of the public sector bank should be less than Rs. 2,000 crore as per rough calculations.Besides, the order does not specify a timeframe for the settlement of compound interest unlike last time so banks can devise a mechanism of adjusting or settling it in staggered manner.