RBI’s Regulatory Package on COVID-19 Decoded: Loan Moratorium to Liquidity Injection

COVID-19 Regulatory Package: Reserve Bank of India (RBI) on March 27, 2020 announced a Regulatory Package on COVID-19 to tackle the impact of deadly Coronavirus on Indian Economy. From Repo Rate & CRR Cuts to 3-months moratorium on term loans, RBI Governor Shaktikanta Das announced several measures while addressing the media after the release of Seventh Bi-monthly Monetary Policy Statement 2019-20.

RBI's Regulatory Package is addressed to all the commercial banks, co-operative banks, financial institutions and Non-Banking Finance Companies (NBFCs) in the wake of COVID-19 outbreak. The financial package aims to mitigate the impact of Coronavirus on debt markets, infuse liquidity and ensure the functioning of possible businesses.

In this article, we have decoded the complete RBI's package which answers all your queries and doubts related to the relief granted to term loan bearers. Let's have a look at the measures announced by the RBI:

3-Months Moratorium on Term Loans

All the lending institutions including commercial banks, RRBs, co-operative banks, NBFCs and Financial Institutions have been asked to grant 3-months moratorium on the payment of installments under all term loans outstanding as on March 1, 2020.

What does it imply? - Now, the installments of term loans which were due on March 1, 2020 can be paid until May 31, 2020. The extension of payment is valid on installment as well as interest. The Interest will continue to add on the outstanding amount during the moratorium period.

Type of Payments covered under Moratorium: Principal , Interest, EMIs and Credit Card dues

Which loans are included under Term Loans?- Retail Loans, Agricultural Term And Crop Loans

Note: Retail Loans cover home loans, auto loans, personal loans, education loans and EMIs on purchase of mobiles, fridge, TV and gadgets, etc.

Deferment of interest payments for Business loans

The central bank has deferred the payment of interest for all business loans or working capital loans outstanding as on March 1, 2020 up to May 31, 2020. Businesses will be required to pay off the entire accumulated interest after the expiry of moratorium or deferment period

Working Capital facilities: Loans granted in the form of cash credit or overdraft

Easing of Working Capital funding through recalculation of Drawing Power

Borrowers facing stress on repayment of working capital loans granted in the form of cash credit and overdraft due to Coronavirus outbreak will now be allowed to recalculate their drawing power. The drawing power can be reassessed by reducing the profit margins or working capital cycle. This relief will be granted until May 31, 2020.

Businesses which will be granted relief under this package will be placed under supervisory review to ensure that the economic fallout is due to the COVID-19 pandemic.

Moratorium & Recalculation of Drawing Power will not result in Asset Classification downgrade

As the central bank is granting the moratorium or deferment or recalculation of drawing power facility due to economic slowdown cased by COVID-19 pandemic, this would not lead to reclassification of asset or asset classification downgrade. As this relief will not be considered as a concession or change in terms of loan agreements.

Asset Classification as NPA & SMA

The asset classification as Non-Performing Asset (NPA) and Special Mention Account (SMA) of term loans granted moratorium will be done on the basis of revised payment schedule of installments. On the other hand, the asset classification of working capital loans will be carried out on the basis of total accumulated interest