As discussed in the previous article, RBI has announced relief measures in view of COVID-19 crisis – We discussed one area. Below are the other 2 measure taken to ease the credit crunch:
(B)Regulatory and Supervisory Measures
Alongside liquidity measures as discussed in part (A) of the previous article, it is important that steps are taken to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic which will go a long way to prevent the transmission of financial stress to the real economy, and ensure the continuity of viable businesses and provide relief to borrowers amist the distress. These measures include
1. Moratorium on Term Loans: All commercial banks, co-operative banks, all-India Financial Institutions, and NBFCs are being permitted to allow a moratorium of three months on payment of instalments with respect to all term loans outstanding as on March 1, 2020. This will not result in asset classification downgrade.
2. Deferment of Interest on Working Capital Facilities: With respect to working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions are permitted to allow a deferment of three months on payment of interest in all such facilities outstanding as on March 1, 2020. This will not result in asset classification downgrade. The accumulated interest for the period will be paid after the expiry of the deferment period.
3. Easing of Working Capital Financing: With respect to working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions are allowed to recalculate drawing power by reducing margins and/or by reassessing the working capital cycle for the borrowers. Such changes will not result in asset classification downgrade.
N.B. The moratorium on term loans, the deferring of interest payments on working capital and the easing of working capital financing will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (CICs) by the lending institutions. Hence, there will be no adverse impact on the credit history of the beneficiaries.
4. Deferment of Implementation of Net Stable Funding Ratio (NSFR): The Net Stable Funding Ratio (NSFR), which reduces funding risk by requiring banks to fund their activities with sufficiently stable sources of funding over a time horizon of a year in order to mitigate the risk of future funding stress, was required to be introduced by banks in India from April 1, 2020. It has now been decided to defer the implementation of NSFR by six months to October 1, 2020
5. Deferment of Last Tranche of Capital Conservation Buffer: The capital conservation buffer (CCB) is designed to ensure that banks build up capital buffers during normal times (i.e., outside periods of stress) which can be drawn down as losses are incurred during a stressed period. Considering the potential stress on account of COVID-19, it has been decided to further defer the implementation of the last tranche of 0.625 per cent of the CCB from March 31, 2020 to September 30, 2020.
(C) Other Measures announced by RBI
1.Reduction in Repo and Reverse Repo Rate: Policy Repo rate under the Liquidity Adjustment Facility (LAF) reduced by 75 basis points from 5.15 per cent to 4.40 per cent with effect from 27.03.2020. Further, consequent upon the widening of the LAF corridor, the Reverse Repo rate under the LAF stands adjusted from 4.90 per cent to 4.00 per cent w.e.f. 27.03.2020.(Reverse Repo rate further reduced to 3.75% w.e.f. 17.04.2020)
2. Export of Goods and Services: Realization and Repatriation of Export Proceeds-Relaxation (1.4.2020)- The Government of India as well as the Reserve Bank has been receiving representations from Exporters Trade bodies to extend the period of realization of export proceeds in view of the outbreak of pandemic COVID- 19. It has, therefore, been decided, in consultation with Government of India, to increase the present period of realization and repatriation to India of the amount representing the full export value of goods or software or services exported, from nine months to fifteen months from the date of export, for the exports made up to or on July 31, 2020. The provisions regarding period of realization and repatriation to India of the full export value of goods exported to warehouses established outside India remain unchanged.
3. LEI norms extended: In the context of the difficulties arising from the outbreak of novel coronavirus disease (COVID-19), and with a view to enabling smoother implementation of the Legal Entity Identifiers (LEI) system in non-derivative markets, the timeline for implementation (Phase III) is extended as under:
|Phase||Net worth of Entities||Current Deadline||Extended Deadline|
|Phase III||Up to Rs 200 crore||March 31,2020||September 30,2020|
Though banks all over the world and in India will face several hardships in coming 6-12 months but with the determination of GOI, the RBI banks in India will brave all situations and it will be real victory over COVID-19.
Stay safe – Stay home!