Explained: RBI’s Regulatory Package on COVID-19 Decoded: Loan Moratorium to Liquidity Injection
RBI's COVID-19 Regulatory Package: 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 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.
Reschedule of loan repayment to not impact credit score
The revised schedule of payment of installments and interest will not be considered as a default. This will not adversely impact the credit score or history of the borrowers.
Banks & Lending Institutions to frame policies for COVID-19 Package
All the lending institutions including commercial banks and NBFCs need to frame policies, approved by the Board, to provide relief under the COVID-19 Regulatory Package to eligible borrowers.
Banks to prepare MIS Report if loan amount is over Rs 5 crore
If the pending loan amount is over Rs 5 crore as on March 1, 2020, the banks and lending institutions will have to prepare an MIS Report containing the details of relief granted and borrower-wise details.
Other Measures announced in Bi-monthly Monetary Policy statement
- The repo rate cut by 75 basis points to 4.4 percent.
- The reverse repo rate reduced to 4 percent.
- Cash Reserve Ratio (CRR) reduced by 100 basis points to 3 percent to inject liquidity.
- Liquidity of Rs 3.74 lakh crore injected
Now, Have a look at these questions and answers to clarify your doubts related to the relief granted under the package:
Q1, When will RBI's COVID-19 regulatory package come into effect?
Answer: RBI'S rescue package to contain the economic slowdown caused by COVID-19 comes into effect from March 27, 2020 itself.
Q2. Who all will be able to enjoy moratorium under the RBI's regulatory package?
Answer: Home loan borrowers, car loan borrowers, personal loan borrowers, education loan borrowers, agricultural loan borrowers, crop loan borrowers
Q3. Does Moratorium apply to EMIs and Credit Card dues?
Answer: Yes, the 3-month moratorium applies to Equated Monthly Installments (EMIs) and Credit Card dues.
Q4. Is the RBI's regulatory package applicable to all private and public sector banks?
Answer: Yes, the package applies to all the commercial banks including the private and public sector banks. However, each bank has to frame its own policy in regard with the package.
Q5. What is Drawing Power?
Answer: The Drawing power is the limit of amount that can be withdrawn by a business from the sanctioned working capital limit. This amount is calculated on the basis of firm's primary security less profit margin.
Q6. What is Working Capital?
Answer: Working Capital is the amount required by businesses to carry out their day-to-day operations. The Working Capital is calculated as Current Assets less Current Liabilities.