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Centre to ensure interest waiver benefits to small borrowers by Nov 2

Experts say provisioning requirements for banks may go up 20-50 per cent in Q2 due to SC standstill order

Topics
Bank loans | Supreme Court

Mumbai 

Supreme Court to examine confidentiality of bank NPAs

The Union government is set to pass on the benefits of the compound interest waiver to small borrowers before November 2.

Banks, on the other hand, have started making additional provisioning based on their own judgment of the loan books in balance sheet for the second quarter following the Supreme Court’s standstill order on classifying loans as non-performing assets (NPA).

“We are putting all our efforts to ensure that we pass on compound interest waiver to borrowers before the SC deadline,” a top government official said, requesting anonymity.

Both state-owned and private lenders will be asked to refund the compound interest waiver sum to all borrowers, with loans up to Rs 2 crore, before November 2 and file a claim with the government subsequently. However, the government is likely to frame a scheme that will spell out the modalities to be followed by lenders. It will be applicable to all borrowers — irrespective of whether they availed moratorium or not but the calculation of computing waiver by banks may vary according to the type of loan.

It will tentatively cost around Rs 6,500 crore to the Central government. After getting the Cabinet’s nod, the government will seek authorisation from Parliament in the winter session for making appropriate grants towards waiver of compound interest, following which it may start transferring money to the banks based on their claims.

The Supreme Court, which is hearing a batch of petitions seeking waiver of interest on loans during the RBI’s six-month moratorium announced in March, had directed the government to tell the progress of compound interest loan waiver by November 2.

On September 3, the SC had asked banks not to classify loans that were standard or stressed till August 31 as NPAs till further order. Banks have started finalising their balance sheets for July-September period and have made additional provisioning towards possible NPA. They are being termed as either accelerated or Covid-related provisioning but experts felt that the second quarter results of banks may not reflect true picture of their asset quality or profitability.

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First Published: Mon, October 19 2020. 14:51 IST
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