Penal interest on term loans by state bank of india

S.PARTHASARATHY (DGM-Finance Kamachi Industries Limited.)   (28 Points)

23 December 2016  

Is Penal Interest on Term Loan from Bank (SBI) is calculated on the OVERDUE/IRREGULAR PORTION OF LOAN  or on the ENTIRE OUTSTANDING ???

a)  Our Company taken 100 Lacs Loan - repayable Rs.5 Lacs loan each month for 20 Months.

b) Company had paid 100% of Interest due every month. There is no dispute in Interest payment.

c) For the First 5 Month, the company had paid correctly, the Instalment (Rs.5 lacs *5 - 25 lacs).

Now, the 6th month Instalment, the company could not able to pay, for various business reasons.

Due to which, the Loan Outstanding is at the end of 6th month is Rs. 75 Lacs (Suppose to be 70 lacs only).

Now, my query, the penal interest charged by SBI for the 6th month is on Rs. 5 lacs (overdue / irregular portion of loan)  or on Rs. 75 lacs..

The Bank Argues, as per the SBI Bank Circular, it is on Rs.75 Lacs because the circular wording says, "on the ENTIRE OUTSTANDING".. However, we argue that, it should be on Rs.5 Lacs only, because, this portion only constitutes overdue / irregular portion.

 

Pls. help.