Clarification Released on RBI’s EMI Moratorium Amid COVID-19

The RBI allowed all lending institutions to offer a three-month moratorium for payment of all instalments payable between March 1, 2020, and May 31, 2020, last week. Following the advisory by RBI, there have been a lot of speculations about it. Accordingly, Sunil Mehta, Chief Executive, Indian Banks’ Association, has answered common questions for clarification.
  1. Why this relief measure has been announced?
    Due to COVID-19 pandemic, it was felt that there may be some disturbances in the Cash Flows and loss of income so these packages are for bringing relief to people.
  2. Which are the facilities eligible for availing the benefits under the RBI COVID-19 regulatory package and whether the facility is extended across the board to all borrowers?
    All Term Loans such as Agricultural Term Loans, Retail, Crop Loans and Cash Credit/Overdraft qualify to gain these benefits. This is available to all such accounts, which are Standard Assets as on 1st March 2020. To reduce paperwork this has been extended to all the borrowers. The repayment period for Term Loans will get extended by 90 days e.g. a loan repayable in 60 instalments maturing on 1st March 2025 will mature on 1st June 2025.
  3. Is rescheduling of payments applicable for all kinds of Terms Loans and does it include interest?
    Rescheduling of Principal can be done for all Term Loans in all the Segments, regardless of their Segment or tenor for three months payable between March 1, 2020, and May 31, 2020. For example, if the last instalment of a Term Loan is payable on 1st March 2020, it will become payable on 1st June 2020. For EMI based Term Loans, it will be three EMIs payable between the same period. For other Term Loans, it will be all the instalments and interest falling due during the same period. For Term Loans, where the repayment has not begun, the interest for three months needs to be calculated.
  4. What happens if the extended Tenor of Term Loan goes past the maximum period specified for a Product or as specified in the Loan Policy?
    This can be increased for all Term Loans without the need for looking for approvals.
  5. What will be the treatment of interest on the Working Capital facilities?
    The recovery of Interest applied on Working Capital on 31st March, 30th April and 31st May 2020 is being ‘deferred’. But the entire interest must be recovered along with the interest being applied on 30th June and where monthly interest is not being applied, along with the next interest date.
  6. What will be the impact of this relief by RBI on borrowers as far as reporting of default is concerned?
    Any delay in payment leads to default and gets reported to Credit Bureaus. For business loans of Rs. 5 Crores and above, the Banks report the overdue position to RBI also through CRILC. Due to this, the overdue payments after 1st March will not be reported to authorities for three months. No penal interest or charges will be payable. SEBI has allowed that Credit Rating Agencies (CRAs) may not consider such delay if it is due to lockdown.
  7. Should Businesses/ Individuals certainly take advantage?
    Yes, if there are troubles in cash flows or loss of income occurs. But consider that the interest on the loans, not compulsorily payable immediately, continues to accrue on accounts, resulting in a higher cost. Example. If the loan remaining is Rs 100,000 and one charges 12% rate of interest on the loans, then every month one has to pay interest of Rs. 1000. If one does not opt for this, they are liable to pay interest at 12% p.a. which is Rs. 3030.10 at the end of 3rd month.
  8. Should one get disturbed if Bank approaches them for repayment?
    Simply tell that they want to avail this benefit.
  9. Regarding Credit Card dues?
    This relief is available. If it is essential to pay the minimum amount and it is not paid, it gets reported to Credit Bureaus. The overdue in the Credit Card account do not get reported for three months, but interest will be charged. One should check from their Card provider to arrive at interest payable and must remember that the interest rate on Credit card dues are normally much higher compared to normal bank credit and therefore a decision must be taken.
  10. What about interchangeability being permitted from NFB to FB or FB to NFB for businesses?
    The interest applied on the Fund Based portion of Interchangeability availed during the stated period will qualify for a moratorium. In respect of new approvals given from 1st March and used during the period, the interest applied on such portion would qualify.
  11. In what other ways relief has been given?
    The businesses can ask the Bank to re-examine their Working Capital requirements due to the interruption of their cash flows. They can also request for a reduction in the margin on NFB facilities or also relief in Security. Decisions will be taken by the Banks independently depending on the authenticity of the request.
  12. Are NBFCs/MFIs/HFCs eligible under the “Easing of Working Capital Financing”?
    Presently, no but provisions have been made for sufficient liquidity support to them under Targeted Longer-term Refinancing Operations (TLTRO). Liquidity availed by Banks has to be used in investments add to the remaining level of their investments as on March 27. They have to gain up to half of their additional holdings of eligible instruments from the primary market and the other half from the secondary market. These investments will be classified as held to maturity even for extra of 25 per cent permitted in the HTM portfolio. The exposures would not be calculated under the large exposure framework. Banks will be able to support NBFCs/ MFIs/ HFCs etc. under this window and RBI does not expect squeeze in liquidity for these Financial Intermediaries.
  13. Will all these measures of RBI be considered as “restructuring” and about the applicable provisions?
    These measures will not be treated as “Restructuring” and therefore will not lead to asset classification downgrade. The enhanced provisions for Restructured Accounts will not apply.
  14. What about instalments/EMIs being recovered through SI/ECS/NACH? If Borrower demands for the refund of the instalment/EMIs, its process?
    Contact the bank for the updated instructions.

The official answers by the Chief Executive can be found here.

About the Author

Ishan Harlalka
I am a 3rd year law aspirant pursuing BA LLB. I am deeply interested in learning and am always looking forward to gain knowledge about new subjects. In my leisure time, I try to read books of various genres and by different authors. As people from non-law background may find it difficult to understand legal provisions and jargons, I try to write in a way that my articles are easy to comprehend and after reading them, one can discuss them with others.

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