RBI instructions in-light of COVID-19

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On 27 March 2020, the Reserve Bank of India (“RBI”) issued a press release – “Statement on Developmental and Regulatory Policies”, which set out various developmental and regulatory policies to address the stress in financial conditions cause by COVID-19. This statement, inter alia, contained regulatory measures to mitigate the burden of debt servicing brought about due to the disruptions on account of COVID-19 and to ensure the continuity of viable businesses.

In furtherance to the above press release, RBI issued the following instructions under – “COVID-19 – Regulatory Package” (DOR.No.BP.BC.47/21.04.048/2019-20 dated 27 March 2020):

1.       Rescheduling of Payments for Term Loans

(a)    All commercial banks, co-operative banks, all-India Financial Institutions and NBFCs shall be permitted to grant a 3-month moratorium on all payment of instalments (which shall include principal, interest, bullet repayments, equated monthly instalments and credit card dues), falling due on 1 March 2020 and 31 May 2020 with respect to all term loans, including agricultural term loans, retail and crop loans.

(b)   The repayment schedule and the residual tenor for such term loans shall also be shifted by 3 months after the moratorium period.

(c)   However, during the moratorium period interest shall continue to accrue on the outstanding portion of the term loans.

2.       Rescheduling of Payments for Working Capital Facilities

(a)    During the period from 1 March 2020 to 31 May 2020, the lending institutions shall be permitted to defer the recovery of interest applied in respect of working capital facilities, sanctioned in the form of cash credit/ overdraft.

(b)  After the completion of the above mentioned period, accumulated interests shall be recovered immediately.

3.       Easing of Working Capital Financing

(a)    Lending institutions shall be entitled to recalculate the ‘drawing power’ by reducing the margins or by reassessing the working capital cycle, in respect of working capital facilities sanctioned in the form of cash credit/ overdraft to borrowers facing economic stress on account of COVID-19.

(b)    The relief shall be subject to the lending institution satisfying itself that such relief has become necessary in light of the economic fallout caused due to COVID-19 and shall be available in respect of changes effected up to 31 May 2020.

(c)  The account which has been provided with this relief shall remain subject to a subsequent supervisory review with regard to their justifiability on account of COVID-19.

4.       Classification of Special Mention Account (SMA) and Non-Performing Asset (NPA)

(a)    The above mentioned reliefs with respect to moratorium/ deferment/ recalculation of ‘drawing power’ shall not be treated as a 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 7 June 2019) and shall not result in the downgrade of the asset classification.

(b)   Any asset reclassification for the term loans which are granted the above mentioned reliefs shall be determined on the basis of the revised due dates and the revised repayment schedule.

(c)   The SMA and the out of order status for the working capital facilities, in respect of which the above mentioned reliefs are provided, shall be determined considering the application of the accumulated interest after the completion of the deferment period and the revised terms.

(d)   There shall be no impact on the credit history of the beneficiaries and the rescheduling of payment shall not amount to a default for the purposes of supervisory reporting and reporting to Credit Information Companies by the lending institutions.

5. Lending institutions shall frame policies for making available the above mentioned reliefs to eligible borrowers.

6.  Bank shall also develop an MIS on the reliefs provided to its borrowers wherever the exposure of a lending institution to a borrower, as on 1 March 2020, is INR 5 crore or more.

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