The reimbursement of the compound interest relieved many banks
When the government notified about waiving off the compound interest value, it relieved banks as it will restrict their losses and it will help them to reduce stress on their balance sheet. This reimbursement of the compound interest relieved many banks.
When Reserve Bank Of India issued a notification on Tuesday in which they directed banks to pay back the compound interest value which was incurred from small borrowers with loans up to Rs. 2 crores from March 1 to August 31. Many banks were relieved when the government notified them about the difference between the interest rates this notification lifted a big weight of losses from the balance sheet of banks.
One of the biggest reasons why banks were not supporting is because they were not sure of when would the amount get credited in the account of banks. Now this problem is sorted as the government has set a timeline for crediting the losses in the bank’s account.
As the government has ordered banks to credit the customer’s account by November 5 and then they will have to request for the reimbursement value in the RBI which acts as a Nodal bank between the government and the different banks.
The banks will have to ask for the reimbursements which will be provided to them from RBI and they will be receiving it by December 15. As there will be no more burden on the banks related to the interest rate computation as now it is all clarified. Now banks and NBFC’s will give a chance and can concentrate on the increasing NPAs and the quality of assets.
As the decision of the government to reimburse the compound interest. This will reduce the burden on lenders and allow them to concentrate on their decreasing asset quality. The payment of the difference from banks for the moratorium period has received an estimation of 7,500 crores.