What changed
The Supreme Court, on April 16, 2004, ordered that excess interest collected by banks through rounding off the applicable interest rate must be recovered and credited to a Trust for disadvantaged people. Each concerned bank must also contribute Rs 50 lakh to this Trust. RBI now advises UCBs to deposit any such excess amounts into the Trust's SBI account and report compliance.
What it means for you
UCBs that have been rounding off interest tax to the next higher 0.25% and collecting excess from borrowers must now refund that excess to a government-mandated Trust. This creates a financial liability for affected banks, including a potential Rs 50 lakh contribution. Banks need to identify any such excess collections and ensure timely deposit to avoid regulatory action.
What you must do
- Identify if your bank has collected excess interest tax from borrowers through rounding off to the next higher 0.25%.
- Deposit any such excess amount into the Trust's Savings Bank Account No. 65012067356 with State Bank of Patiala, Shastri Bhavan Branch, New Delhi.
- Decide on the Rs 50 lakh contribution to the Trust based on your bank's specific facts and circumstances.
- Report compliance to the respective Regional Office of the Reserve Bank of India.
Who it affects
All Primary (Urban) Co-operative Banks, Borrowers of UCBs who were charged excess interest tax via rounding off
What is the Trust Fund mentioned in the circular?
The Trust Fund is created as per the Supreme Court's April 16, 2004 order, for the benefit of disadvantaged people. The Ministry of Social Justice and Empowerment operates a Savings Bank Account for this Trust at State Bank of Patiala, Shastri Bhavan Branch, New Delhi.
Is the Rs 50 lakh contribution mandatory for all UCBs?
No, the circular states that it is for each concerned UCB to decide on the Rs 50 lakh contribution based on the facts and circumstances of its case. Only banks that collected excess amounts are liable to deposit the excess, but the contribution decision is left to the bank.
What should we do if we have not collected any excess interest tax?
If your bank has not realised any excess amount from borrowers through rounding off, you may not need to deposit anything. However, you should still review your records and report compliance to the respective RBI Regional Office as advised.