New Delhi: The Union Government’s decision to bear the burden of interest waiver may not bring immediate relief for banks as there will be a time lag in the transfer of money from the government exchequer to the banks that are required to refund it to their customers following the Supreme Court order, said a banker.
The Supreme Court Wednesday directed the Centre to urgently implement its decision to waive the interest on the interest of those loan accounts that have been facing difficulty due to Covid-19 global pandemic and have availed the loan moratorium announced by the Reserve Bank in March this year.
The apex court fixed the date of November 2 for the next hearing while expressing its desire that the government will implement its decision by then. The Centre has already informed the top court that it will bear the cost of waiver of compound interest (interest on interest) which has been pegged at around Rs 6,500 crores.
Banks to face delayed payments from the government
“If the interest on interest is waived, I think the government of India will reimburse the respective banks, so it should not be a problem,” said a former MD & CEO of a scheduled commercial bank.
“The problem, in this case, is that there will be a time lag even if the government bears the burden,” the former banker told ETV Bharat.
In March this year, the Reserve Bank allowed banks and NBFCs to offer a three-month moratorium on loan repayments to their customers who were facing a cash crunch due to the Covid-19. Later, the RBI extended the loan moratorium by another three months, which expired on August-end this year.
However, a UP resident Gajendra Sharma challenged the terms and conditions of the loan moratorium as banks were charging interest on interest for the moratorium period.
The queries by the Supreme Court prompted the Centre to give an affidavit that interest on interest on the loans up to Rs 2 crore will be waived and the government will bear its burden.
