In the ordinary course of business, unpaid dues to banks would attract an additional interest amount, thus resulting in a higher outgo for the borrower at the end of the moratorium period.
Days after the Reserve Bank of India (RBI) allowed banks to offer their borrowers a three-month moratorium on repayments, the Indian Banks’ Association (IBA) on Monday held a meeting between its members on how best to implement the notification. The association is now planning to write to the regulator seeking clarity on how to execute the moratorium.
The meeting also took stock of banks’ preparedness in delivering services amid the lockdown, particularly to beneficiaries of the government’s recent announcements on income support.
Sunil Mehta, chief executive officer of IBA, said that the body is planning to circulate a set of relevant frequently asked questions (FAQs) among its members.
“Quite a few issues were discussed on Monday, such as preparedness for DBT (direct benefit transfer) delivery and sectors which are facing challenges. As for the moratorium issue, we are seeking clarity as to whether there will be a stop of the clock or it will apply only to prospective instalments,” Mehta said.
Stopping the clock refers to the practice of putting a pause to compounding of interest on loans. In the ordinary course of business, unpaid dues to banks would attract an additional interest amount, thus resulting in a higher outgo for the borrower at the end of the moratorium period.
On Friday, State Bank of India (SBI) chairman Rajnish Kumar had explained that bank profitability does not take a hit under a moratorium. “Interest accrual does not stop and the payable date gets changed,” he had said on a concall with reporters after the RBI announced its monetary policy.
Banks are planning to ask the RBI if they should forgo this additional interest in the case of borrowers who choose to avail the moratorium or continue to apply it and simply defer the date of repayment. The regulator’s response could be significant in terms of the actual payout that beneficiaries of the moratorium will have to make.
Meanwhile, some public sector banks (PSBs) have already begun to notify their borrowers about the moratorium being made available to them. On Tuesday, Bank of Baroda (BoB) and Central Bank of India tweeted that they are allowing their borrowers a three-month moratorium on repayments. Canara Bank, on the contrary, sent messages to its borrowers asking them to opt-in for the moratorium rather than offering a sweeping three-month breather on all repayments.