What is the latest Supreme Court decision on the interest on interest to be charged by banks for the COVID period?
Answer
Answer
The Supreme Court on Tuesday clarified to the lenders that interest on interest cannot be charged on loan amounts that have been granted moratorium between March and August 2020. This will be irrespective of the loan size. Lenders have now been asked by the Supreme Court to refund the said amount, which totals to around Rs.7,500 crore.
You would recollect that the earlier Supreme Court order had asked banks to refund interest on interest only on the loans below a value of Rs.2 crore. At that time, the banks had already taken a hit of Rs.6,500 crore which was compensated by the government. It is estimated that now an additional hit of Rs.7,500 crore is envisaged to be written off.
According to a research report by ICRA, the Supreme Court had already ruled that interest expense cannot be waived off as it would impair the credit quality of banks. However, the Supreme Court had rejected extension of moratorium beyond the original 6 months period deeming that it was neither required nor feasible.