Amidst lot of speculations an discussions regarding the implementation of Moratorium for borrowers the Reserve Bank of India (RBI) has conveyed to several banks and non-banking finance companies (NBFCs) that borrowers should be considered ‘under moratorium by default’ irrespective of their opting-in or otherwise. The regulatory instruction, conveyed through emails, is very different from what many bankers have decided to follow.
The loan moratorium, which was announced by the banking regulator at its unscheduled monetary policymakers’ meet last month, was granted to help small businesses and others tide over the economic fallout of the coronavirus crisis.
At present, several lenders are offering the option to delay the payment of loan interest and principal only to borrowers who explicitly ask for it. “But, according to RBI, it’s just the opposite. The 3-month moratorium should be given to all unless a borrower informs the bank or NBFC that he/she is not interested in availing the facility,” .
“RBI is quite categorical. For instance one of the emails make it clear that no demand should be made on borrowers or any recovery procedure undertaken by the bank or its agents for non-payment of amount due during the moratorium period. Thus, as long as borrowers fulfil the condition laid down in the recent RBI circular, they are eligible. Some of the banks were reluctant to extend the scheme to borrowers.”
For a better clarity regarding the moratorium the recent RBI circular is given below.
COVID-19 – Regulatory Package
(i) Rescheduling of Payments – Term Loans and Working Capital Facilities
1.In respect of all term loans (including agricultural term loans, retail and crop loans), all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies) (“lending institutions”) are permitted to grant a moratorium of three months on payment of all instalments1 falling due between March 1, 2020 and May 31, 2020. The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period. 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 defer the recovery of interest applied in respect of all such facilities during the period from March 1, 2020 upto May 31, 2020 (“deferment”). The accumulated accrued interest shall be recovered immediately after the completion of this period.
(ii) 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 recalculate the ‘drawing power’ by reducing the margins and/or by reassessing the working capital cycle. This relief shall be available in respect of all such changes effected up to May 31, 2020 and 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.
Classification as Special Mention Account (SMA) and Non-Performing Asset (NPA)
- Since the moratorium/deferment/recalculation of the ‘drawing power’ is being provided specifically to enable the borrowers to tide over economic fallout from COVID-19, the same will not be treated as concession or change in terms and conditions of loan agreements due to financial difficulty of the borrower under paragraph 2 of the Annex to the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated June 7, 2019 (“Prudential Framework”). Consequently, such a measure, by itself, shall not result in asset classification downgrade.
- The asset classification of term loans which are granted relief as per paragraph 2 shall be determined on the basis of revised due dates and the revised repayment schedule. Similarly, working capital facilities where relief is provided as per paragraph 3 above, the SMA and the out of order status shall be evaluated considering the application of accumulated interest immediately after the completion of the deferment period as well as the revised terms, as permitted in terms of paragraph 4 above.
- The rescheduling of payments, including interest, will not qualify as a default for the purposes of supervisory reporting and reporting to Credit Information Companies (CICs) by the lending institutions. CICs shall ensure that the actions taken by lending institutions pursuant to the above announcements do not adversely impact the credit history of the beneficiaries.
- Lending institutions shall frame Board approved polices for providing the above-mentioned reliefs to all eligible borrowers, inter alia, including the objective criteria for considering reliefs under paragraph 4 above and disclosed in public domain.
- Wherever the exposure of a lending institution to a borrower is ₹ 5 crore or above as on March 1, 2020, the bank shall develop an MIS on the reliefs provided to its borrowers which shall inter alia include borrower-wise and credit-facility wise information regarding the nature and amount of relief granted.
Instalments will include the following payments falling due from March 1, 2020 to May 31, 2020: (i) principal and/or interest components; (ii) bullet repayments; (iii) Equated Monthly instalments; (iv) credit card dues.