The Reserve Bank of India (RBI) ordered the Banks and NBFCs to immediately make a policy to refund the ”interest on interest” charged during the moratorium.
The Circular was issued by the RBI with regards to the asset classification and Income Recognition following the expiry of the COVID-19 regulatory package as per the orders of the Supreme Court in the case of Small Scale Industrial Manufacturers Association vs UOI & Ors. and other connected matters on March 23, 2021.
“All lending institutions shall immediately 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 finalized by the Indian Banks Association (IBA) in consultation with other industry participants/bodies, which shall be adopted by all lending institutions,” the RBI in the circular said.
As per the circular, the reliefs shall be applicable to all borrowers, including those who had availed of working capital facilities during the moratorium period, irrespective of whether the moratorium had been fully or partially availed, or not availed.
Lending institutions shall disclose the aggregate amount to be refunded/adjusted in respect of their borrowers based on the above reliefs in their financial statements for the year ending March 31, 2021.
Asset classification of borrower accounts by all lending institutions following the judgment shall continue to be governed by the extant instructions as clarified.
Firstly, in respect of accounts that were not granted any moratorium in terms of the COVID-19 Regulatory Package, asset classification shall be as per the criteria laid out in 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).
Secondly, in respect of accounts that 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.