Private lender, ICICI Bank on April 24, said it has provided Rs 175 crore to refund the interest-on-interest amount to borrowers on the moratorium loans. The management said this during a conference call with reporters post the announcement of results.
Net interest income (NII) of the bank, the difference between interest earned and interest expended, grew by 16.9 per cent to Rs 10,431.13 crore in Q4FY21, compared to Rs 8,926.9 crore in Q4FY20.
In accordance with RBI (Reserve Bank of India) notification dated April 7, 2021, the Bank is required to refund/adjust 'interest on interest' to borrowers. As required by the RBI notification, the methodology for calculation of such interest on interest has recently been circulated by the Indian Banks' Association, the bank said.
The Bank is in the process of suitably implementing this methodology. On March 31, 2021, the bank created a liability towards estimated interest relief and reduced the same from the interest income, the bank informed while announcing Q4 results.
On April 7, the RBI had issued a circular which mandated all lending institutions to 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 Supreme Court judgment.
The Supreme Court, on March 23, ruled that banks have to waive the compound interest to all borrowers during the moratorium period. The RBI announced a six-month moratorium for all term loans last year to help the stressed borrowers who suffered hardships during the COVID-19 lockdown period.
In order to ensure that the above judgement is implemented uniformly in letter and spirit by all lending institutions, methodology needs to be finalised by the IBA in consultation with other industry participants, the RBI had said in the circular.
For the banking industry, the total cost of the compound interest waiver is estimated to be around Rs 15,000 crore, according to some private estimates. But banks have already paid part of it for borrowers with loans under Rs 2 crore. Hence, the remaining burden will not be huge. It is estimated to be between Rs 7,500 crore and Rs 8,000 crore. This figure can change after a final assessment.
For the quarter ended March 31, 2021, it clocked a 260.5 per cent year-on-year (YoY) growth in standalone profit at Rs 4,402.61 crore. The profit in the corresponding period last year was at Rs 1,221.4 crore.
Non-interest income (other income) witnessed a 3.4 per cent year-on-year decline at Rs 4,111.35 crore for the March quarter, while pre-provision operating profit (PPoP) increased 15.6 per cent to Rs 8,539.83 crore in Q4FY21 compared to the corresponding period.