The RBI has announced certain regulatory measures in the wake of the disruptions on account of COVID-19 pandemic and the consequent asset classification and provisioning norms. As per the recent announcement, the intensification of COVID-19 disruptions has imparted priority to relaxing repayment pressures and improving access to working capital by mitigating the burden of debt servicing, prevent the transmission of financial stress to the real economy, and ensure the continuity of viable businesses and households.
Prior to this, RBI had also taken other inititatives to help cope with the COVID-19 impact – We have detailed the RBI initiatives for COVID-19 in our previous blogs. Wondering what is the extended moratorium scheme recently announced by RBI? The details are as follows:
Latest Changes Announced by RBI: COVID-19 – Regulatory Package
Rescheduling of Payments Due to COVID-19 – Term Loans and Working Capital Facilities
In view of the extension of lockdown and continuing disruption on account of COVID-19, all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, All-India Financial Institutions, and Non-banking Financial Companies (including housing finance companies) (“lending institutions”) are permitted to extend the moratorium by another three months i.e. from June 1, 2020 to August 31, 2020 on payment of all instalments in respect of term loans (including agricultural term loans, retail and crop loans). Accordingly, the repayment schedule for such loans as also the residual tenor, will be shifted across the board. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.
In respect of working capital facilities sanctioned in the form of cash credit/overdraft (“CC/OD”), lending institutions are permitted to allow a deferment of another three months, from June 1, 2020 to August 31, 2020, on recovery of interest applied in respect of all such facilities. Lending institutions are permitted, at their discretion, to convert the accumulated interest for the deferment period up to August 31, 2020, into a funded interest term loan (FITL) which shall be repayable not later than March 31, 2021.
Moratorium can be offered in respect of all term loans (including agricultural term loans, retail and crop loans) and working capital facilities for below payments falling due during the moratorium period.
(i) Principal and/or interest components;
(ii) Bullet repayments;
(iii) Equated Monthly Instalments or EMIs;
(iv) Credit Card dues
Easing of Working Capital Financing
In respect of working capital facilities sanctioned in the form of CC/OD to borrowers facing stress on account of the economic fallout of the pandemic, lending institutions may, as a one-time measure,
(i) recalculate the ‘drawing power’ by reducing the margins till August 31, 2020.
However, in all such cases where such a temporary enhancement in drawing power is considered, the margins shall be restored to the original levels by March 31, 2021; and/or,
(ii) review the working capital sanctioned limits upto March 31, 2021, based on a reassessment of the working capital cycle.
The above measures shall be contingent on the lending institutions satisfying themselves that the same is necessitated on account of the economic fallout from COVID-19. Further, accounts provided relief under these instructions shall be subject to subsequent supervisory review with regard to their justifiability on account of the economic fallout from COVID-19.
(iii) Asset Classification:
(a) The conversion of accumulated interest into FITL, and the changes in the credit terms permitted to the borrowers to specifically tide over economic fallout from COVID-19 will not be treated as concessions granted due to financial difficulty of the borrower and consequently, will not result in asset classification downgrade.
(b) In respect of accounts classified as standard as on February 29, 2020, even if overdue, the moratorium period, wherever granted in respect of term loans, shall be excluded by the lending institutions from the number of days past-due for the purpose of asset classification under the IRAC norms. The asset classification for such accounts shall be determined on the basis of revised due dates and the revised repayment schedule.
(c) Similarly, in respect of working capital facilities sanctioned in the form of cash credit/overdraft (“CC/OD”), where the account is classified as standard, including SMA, as on February 29, 2020, the deferment period, wherever granted shall be excluded for the determination of out of order status.
We thank the RBI for such relief packages which help lessen the burden of debt servicing brought about by disruptions on account of Covid-19 on borrowers.