More interest on loan repayments after moratorium ends

Commercial banks will be allowed to charge additional interest on differed installments after the moratorium ends on interest and capital payments of loans to businesses affected by COVID-19.

This decision was recently taken by the Central Bank (CB) and conveyed to banks through a circular after banks raised concerns on interest cost relating to deposit/ borrowing liabilities during the corresponding debt moratorium period.

Under an earlier announcement, the payment of installments (interest + capital) is not required until the end of the moratorium period. Once the moratorium period ends, customers will have to start making payments as agreed before the concessions were offered. “Banks can charge up to 7 per cent interest per annum as additional interest on the differed installments in relation to Equated Monthly Installment (EMI) rupee loans,” the circular said.

It said the above interest shall be recovered at the end of the extended remaining tenure of the loan. However banks should not recover this interest immediately after the end of the moratorium period. For other types of facilities granted in rupee or foreign currency, banks and the borrower need to agree on a concessionary interest rate for the deferred installments.

The moratorium concessions were offered to COVID - 19 hit businesses including self-employment and individuals under the CB’s Extraordinary Regulatory Measures, and the Monetary Law Act Order No. 1 of 2020 on Maximum Interest Rates on Pawning Advances of Licensed Banks.