Lenders should disclose the aggregate amount to be refunded/adjusted as of March 31, 2021: RBI

Reserve Bank of India on Wednesday asked lending institutions to disclose the aggregate amount to be refunded/adjusted in respect of their borrowers based on the Asset Classification and Income Recognition following the expiry of the Covid-19 regulatory package in their financial statements for the year ending March 31, 2021.

The above announcement of the central bank was in view of Hon’ble Supreme Court of India judgement on March 23, 2021. The Apex Court on its March 23 judgment said that “We are of the opinion that there is no justification for waiving compound interest only on loans of up to Rs 2 crore. There shall be no interest on interest or compensation interest during moratorium period, irrespective of the loan amount. If any such amount has been collected it shall be refunded. However, the Court held that any amount collected as compound interest shall be adjusted to the next installment payable instead of refunding it to the borrower”.

Accordingly RBI advised all the lenders to put in place a Board-approved policy to refund/adjust the ‘interest on interest’ charged to the borrowers during the moratorium period, i.e. March 1, 2020 to August 31, 2020 in conformity with the above judgement. “In order to ensure that the above judgement is implemented uniformly in letter and spirit by all lending institutions, methodology for calculation of the amount to be refunded/adjusted for different facilities shall be finalised by the Indian Banks Association (IBA) in consultation with other industry participants/bodies, which shall be adopted by all lending institutions” it said.

The relief should be provided to all the borrowers including those who had availed of working capital facilities during the moratorium period, irrespective of whether moratorium had been fully or partially availed, or not availed, in terms of the circulars DOR.No.BP.BC.47/21.04.048/2019-20 dated March 27, 2020, RBI said.

Asset Classification and Income Recognition:

In respect of asset classification of accounts that were not granted any moratorium in terms of the Covid19 Regulatory Package, lenders are asked to follow the Master Circular – Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances dated July 1, 2015, or other relevant instructions as applicable to the specific category of lending institutions (IRAC Norms). For the accounts which were granted moratorium in terms of the Covid19 Regulatory Package, the asset classification for the period from March 1, 2020, to August 31, 2020, shall be governed in terms of the circular DOR.No.BP.BC.63/21.04.048/2019-20 dated April 17, 2020, read with circular DOR.No.BP.BC.71/21.04.048/2019-20 dated May 23, 2020. For the period commencing September 1, 2020, asset classification for all such accounts shall be as per the applicable IRAC Norms, it said.