What changed
RBI now requires all lending institutions to refund or adjust the 'interest on interest' charged to borrowers during the moratorium period (March 1 to August 31, 2020), following the Supreme Court judgment of March 23, 2021. The Indian Banks Association will finalize the calculation methodology. Asset classification rules are also clarified: accounts with moratorium follow earlier COVID circulars for the moratorium period, and standard IRAC norms from September 1, 2020.
What it means for you
Banks must immediately create a board-approved policy for refunding 'interest on interest' to all borrowers, including those with working capital facilities, regardless of whether they availed the moratorium. This will impact financial statements for FY2020-21, requiring disclosure of the aggregate refund amount. Asset classification clarity ensures no confusion on NPA recognition post-moratorium.
What you must do
- Formulate and approve a board-level policy for refunding 'interest on interest' charged during March 1 to August 31, 2020.
- Adopt the calculation methodology to be finalized by IBA for determining refund amounts across different facilities.
- Disclose the aggregate refund/adjustment amount in financial statements for the year ending March 31, 2021.
- Apply asset classification as per earlier COVID circulars for the moratorium period and standard IRAC norms from September 1, 2020.
Who it affects
All Commercial Banks (including SFBs, LABs, RRBs), All Primary (Urban) Co-operative Banks, All State Co-operative Banks and District Central Co-operative Banks, All-India Financial Institutions, All NBFCs (including HFCs)
Who is eligible for the 'interest on interest' refund?
All borrowers, including those with working capital facilities, irrespective of whether they availed the moratorium fully, partially, or not at all during March 1 to August 31, 2020.
How will the refund amount be calculated?
The Indian Banks Association (IBA), in consultation with other industry bodies, will finalize the methodology for different facilities. All lending institutions must adopt this methodology.
What are the asset classification rules after the moratorium period?
For accounts with moratorium, asset classification from March 1 to August 31, 2020 follows earlier COVID circulars. From September 1, 2020, standard IRAC norms apply. Accounts without moratorium follow standard IRAC norms throughout.