Tag: Waiver

Indian banks say government interest waiver will add to costs, spark litigation

By Nupur Anand

MUMBAI (Reuters) – Indian bankers fear the government’s decision to waive some interest payments on loans under a COVID-19 support plan will create unnecessary work for lenders and lead to more litigation, without providing much of a boost for the sagging economy.

In an Oct. 2 filing with the Supreme Court, seen by Reuters, the government said it is amending a controversial clause in a relief plan that allowed distressed borrowers to skip repayments for six months but then charged them “interest-on-interest” on the delayed payments, putting them deeper in debt.

The change will waive the compounded interest component on small business loans and some personal debts from March to August.

The government will bear the cost, which could be as high as $1 billion, according to analysts.

But for Indian lenders saddled with over $120 billion of bad loans and a coronavirus-induced collapse in demand, the move will further pressure already stressed balance sheets.

In the case of a similar scheme for farm loans, banks typically need to wait nine to 24 months to get the funds from the government, two bankers said.

Lenders also will need to recalculate millions of loans, according to interviews with four bankers and a lawyer.

“Getting the money back from the government is a painful exercise,” said a senior banker at one of India’s shadow banks.

“At the end, a lot of work will happen, nobody will be happier and the government will be poorer.”

A finance ministry spokesman declined to comment, citing ongoing legal proceedings.

Banks’ legal costs are also on the rise as lawsuits pile up.

“The state-owned banks may show government support, but the private lenders are in it for the profit. They will have different calculations and those calculations will be challenged by the government,” said the lawyer.

A banker at a private lender added: “That is the problem with such waivers, because where does it end?”

Bankers are also concerned about that waivers may distort the culture of lending in India and argue that there are other ways to help borrowers who are in need, such as providing subsidies or loan restructuring.

“Now, in case of a flood or any other situation, even borrowers who can pay may not be keen to do so because they know the government will step in to rescue them,” said a senior banker at a public sector lender.

(Reporting by Nupur Anand in Mumbai; additional reporting by Abhirup Roy in Mumbai; Editing by Alasdair Pal and Kim Coghill)

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Top India Court Asks Government to Outline Interest Waiver Plans

(Bloomberg) — India’s top court asked the government and banks how they plan to waive deferred interest on loans for small borrowers and whether similar relief measures could be provided to other sectors.



a large clock tower towering over a city at night: A metro train travels along an elevated track as residential buildings stand in the background at night in the outskirts of New Delhi, India, on Sunday, July 7, 2019. India's new Finance Minister Nirmala Sitharaman resisted calls for a fiscal boost to spur a weakening economy, sticking instead to a plan to narrow the budget deficit over time by keeping spending in check.


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A metro train travels along an elevated track as residential buildings stand in the background at night in the outskirts of New Delhi, India, on Sunday, July 7, 2019. India’s new Finance Minister Nirmala Sitharaman resisted calls for a fiscal boost to spur a weakening economy, sticking instead to a plan to narrow the budget deficit over time by keeping spending in check.

The Supreme Court on Monday asked lawyers from the government and Reserve Bank of India to submit information on the measures they plan to take on waiving some of the interest and recasting loans for stressed borrowers. The court will listen to this feedback on Oct. 13.

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Prime Minister Narendra Modi’s government will pay the “interest on interest” on loans of as much as 20 million rupees ($273,000) for the duration of the Reserve Bank of India-authorized repayment holiday that ended on Aug. 31, according to an affidavit filed by the Ministry of Finance in the Supreme Court on Friday.

Groups of borrowers, including industry bodies for real estate and power producers, have approached the top court seeking a waiver on compounded interest and an extension of the repayment holiday.

Banks and home finance companies have been imposing charges on both the principal and the interest, which translated into repayment periods being extended by more than six months.

Relief Measures

The waiver comes after the Supreme Court asked the Modi administration to assess the impact of the coronavirus pandemic on the economy and come up with proposals for relief measures.

The Reserve Bank of India has taken a number of unprecedented steps to help borrowers facing a cash crunch after the world’s strictest lockdown shuttered businesses and left millions jobless. The moratorium, however, allowed lenders to impose additional interest over the repayment holiday. Subsequently, the RBI allowed banks to restructure loans without having to classify them as non-performing for the next two years.

Read about debt relief panel adding to uncertainty bad loans

India’s main banking gauge was trading up 1.5% at 12:55 p.m. in Mumbai on Monday.

‘Hanging Sword’

The government’s decision to pay the compounded interest “comes as a relief,” said Abhimanyu Sofat, head of research at Mumbai-based IIFL Securities Ltd. The uncertainty on the issue was like a “hanging sword for lenders.”

Read: End of Loan Holiday Threatens Pain, Defaults for Indian Business

Banks will have to forgo 6 trillion rupees if interest on all loans are waived off, according to the government’s affidavit. That will wipe out a substantial part of lenders’ net worth and could raise questions on their survival, it said.

India’s banks — already weakened by a two-year-old shadow lending crisis — are seeking more guidance from the regulator on how to battle one of the world’s worst bad loan ratios.

Read: India’s

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