Waiver of Interest-on-Interest to Cost Rs 7,500 Cr to Banks: Crisil

The ex-gratia payment of interest-on-interest by banks and non-banking finance companies for the moratorium period would be tantamount to a Rs 7,500 crore benefit for eligible borrowers, ratings agency Crisil's analysis showed.

The tab for such a move is being picked up by the government.

The analysis is based on guidelines for such payments announced by the Ministry of Finance.

"The benefit will be extended to borrowers with outstanding loans (standard as on February 29, 2020) of less than Rs 2 crore under select categories, irrespective of whether the moratorium was availed of or not," the ratings agency said in a statement.

"Such loans account for more than 40 per cent of systemic credit and 75 per cent of borrowers."

According to the statement, the cost to the exchequer would have halved, if the waiver was allowed only where moratorium was availed of.

"Also, to ensure effective and timely implementation, the government has asked lenders to credit the amount to eligible borrowers latest by November 05, 2020," the statement said.

"This will be the difference between compound interest and simple interest over six months (March 1, 2020 to August 31, 2020). While lenders have to apply for reimbursement by December 15, 2020, the timelines for receipt of funds from the government are yet to be notified."