Majlis Terminates Compound Interest

EghtesadOnline: Parliament voted for a bill on Tuesday based on which compound interest on bank loans that matured by the end of last fiscal year (March 20, 2019) would be eliminated and debtors given until mid-February 2020 to repay their dues.

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27 July 2019

The controversial bill was passed amid mixed voices in favor and against the decision.

Majlis Research Center, the influential research arm of the parliament, has said that in light of existing laws many manufactures have either downed their shutters or are on the verge of insolvency due to the back-breaking burden of bank liabilities. Over the years they were neither able to repay their debts nor allowed to apply for new loans to remain afloat.

The new laws would also benefit lenders as they will get their long pending monies back. “Otherwise, lenders could lose hope in customers reimbursing their debts and as result write off the unpaid debts as bad loans,” the MRC warned, according to Financial Tribune.

Compound interest (or compounding interest) is interest calculated on the principal amount, which also includes all the accumulated interest of previous periods of a deposit or loan.

On the flip side, the MRC admits that the new law will reward deadbeat banking customers and let bank debtors heave a sigh of relief while punishing creditworthy borrowers.

The governor of the Central Bank of Iran had rejected the latter concerns, saying the law covers only debtors with below 20 billion rials liabilities [for natural entities], IRNA reported.

As per law, the legal entities with banking debts below the ceiling of 50 billion rials will be eligible under the new law.

Hemmati pointed to the big debtors with each having trillions of rials in arrears to the struggling banks, saying members of a government commission for countering economic corruption will discuss relevant developments in the coming days.

Commenting on the new rules, he said the law was approved in coordination with the CBI and Majlis Economic Commission.