In a major relief to borrowers, the Reserve Bank of India (RBI) on Friday extended the moratorium period for the repayment of loans by another three months till August to help them beat the income disruption caused due to the COVID-19 crisis.
In March, the central bank had allowed a three-month moratorium on repayment of all term loans due between March 1, 2020 and May 31, 2020.
“In view of the extension of the lockdown and continuing disruptions on account of COVID-19, it has been decided to permit lending institutions to extend the moratorium on term loan instalments by another three months, i.e., from June 1 to August 31, 2020,” RBI Governor Shaktikanta Das said.
Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by another three months, he said.
As a result of this moratorium, individuals’ equal monthly instalment (EMI) payments of loans taken will not be deducted from their bank accounts, providing much needed liquidity to borrowers whose income has been disrupted due to the lockdown till May 31.
The loan EMI payments will restart only once the moratorium time period expires on August 31.
For borrowers who would avail the moratorium, EMIs will be extended with interest applicable on outstanding principal amount during the no payment period.
On March 27, RBI permitted all commercial banks including regional rural banks, and all-India financial institutions, and non-bank financial companies including housing finance companies and microfinance institutions to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1.
Besides, the central bank directed the lending institutions to exclude the entire moratorium period from March 1 to August 31 from the calculation of 30-day review period or 180-day resolution period due to the COVID-19 crisis.
Under the prudential framework, lending institutions are required to hold an additional provision of 20 per cent in the case of large accounts under default if a resolution plan has not been implemented within 210 days from the date of such default.
“Given the continuing challenges to resolution of stressed assets, lending institutions are permitted to exclude the entire moratorium/deferment period from March 1 to August 31 from the calculation of 30-day review period or 180-day resolution period, if the review/resolution period had not expired as on March 1, 2020,” he said.
In respect of working capital facilities sanctioned in the form of cash credit/overdraft, he said lending institutions are being permitted to allow a deferment of another three months, from June 1 to August 31 in addition to the three months allowed on March 27 on payment of interest in respect of all such facilities outstanding as on March 1.
The Governor said, lenders are permitted to convert the accumulated interest on working capital facilities over the deferment period up to August 31 into a funded interest term loan which will be repayable not later than the end of the current financial year.
The central bank has also decided to raise the bank’s exposure to a group of connected counterparties to 30 per cent of the eligible capital base of the bank to facilitate greater fund flow from the banking sector to corporates.
Under the extant guidelines on the large exposures framework, the exposure of a bank to a group of connected counterparties shall not be higher than 25 per cent of the bank’s eligible capital base at all times.
He said, on account of the COVID-19 pandemic, debt markets and other capital market segments are witnessing heightened uncertainty. As a result, many corporates are finding it difficult to raise funds from the capital market and are predominantly dependent on funding from banks.
“With a view to facilitating the flow of resources to corporates, it has been decided, as a one-time measure, to increase a bank’s exposure to a group of connected counterparties from 25 per cent to 30 per cent of the eligible capital base of the bank. The increased limit will be applicable up to June 30, 2021,” he said.
Emphasising that as the moratorium is being provided specifically to enable borrowers to tide over COVID-19 disruptions, Das said, the same will not be treated as changes in terms and conditions of loan agreements due to financial difficulty of the borrowers and, consequently, will not result in asset classification downgrade.
In respect of all accounts for which lending institutions decide to grant moratorium, and which were standard as on March 1, the 90-day non-performing asset (NPA) norm will also exclude the extended moratorium period.
Consequently, there would be an asset classification standstill for all such accounts during the moratorium period from March 1 to August 31. Thereafter, the normal aging norms shall apply, he added.