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RBI announces relief measures for borrowers: Here’s what we know

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Easing the debt burden on borrowers impacted due to the Coronavirus related disruptions, the Reserve Bank of India today announced certain relief measures. It has allowed a moratorium for retail borrowers, and a deferment of interest payment for businesses for a limited time, while ensuring their credit scores are not impacted. Here is what we know.

RBI announces relief measures for borrowers: Here’s what we know
Easing the debt burden on borrowers impacted due to the Coronavirus related disruptions, the Reserve Bank of India today announced certain relief measures. It has allowed a moratorium for retail borrowers, and a deferment of interest payment for businesses for a limited time, while ensuring their credit scores are not impacted.
Who Is It Applicable To?
Borrowers who have term loans, including agricultural term loans, retail loans, crop loans can avail up to three months of moratorium on installments from lending institutions. These installments include principal and/or interest components, bullet repayments, Equated Monthly Installments (EMI) as well as credit card dues.
Borrowers who have working capital facilities sanctioned in the form of cash credit or overdraft can also avail up to three months of deferment in interest payment from all lending institutions.
Which Lending Institutions Can Grant Such Reliefs?
All Scheduled Commercial Banks in India, including private and public sector banks, small finance banks, local area banks, co-operative banks, regional rural banks (RRBs), non-banking finance companies (NBFCs), housing finance companies (HFCs) can grant these reliefs to their borrowers
What Is The Relief For Retail Borrowers (Term Loans)
All lending institutions are permitted by RBI to allow a three-month moratorium on payment of all installments for term loans, which are falling due between 1st March 2020 and 31st May 2020. Consequently, the repayment schedule and all subsequent due dates, as well as the loan tenor itself gets shifted across the board for three months.
For example, if a retail borrower has a 20 year home loan, and avails this moratorium, then the tenor of the loan becomes 20 years plus 3 months.
To be clear, there is no waiver in the interest of the 3-month moratorium. It is merely a pause in repayments to enable a borrower to tide over the current economic crisis, and then continue normal repayment after the moratorium ends. Interest would continue to accrue during these three months of moratorium, when the repayment clock would have been stopped, so to speak.
The regulator has said that availing this moratorium will not result in an asset classification downgrade, i.e. the account will not be downgraded to a non-performing asset if it was standard just because the repayment has been paused. It will also not impact the credit scores of borrowers availing this benefit.
Can All Retail Borrowers Automatically Get Relief From Paying Instalments For Next Three Months?
No, the relief will be given on a case to case basis by banks. RBI notes, “lending institutions shall frame board-approved policies for providing (above mentioned) reliefs to all eligible borrowers.” This can be interpreted to mean that banks will have to assess, as per their board-approved policies, the objective criteria for providing this relief. The moratorium may be granted only to borrowers impacted by the economic fallout of the pandemic, and would not be a free pass for all borrowers in general.
Shyam Srinivasan, Chief Executive Officer of Federal Bank told CNBC-TV18 that customer can choose to opt-out of paying for three months, or continue payment if they have the ability.
What Is The Relief For Businesses (Working Capital Loans)
All lending institutions have been permitted to allow deferment of three months on payment of interest for all working capital facilities sanctioned in the form of cash credit or overdraft. This is applicable for all working capital loans falling due between 1st March 2020 and 31st May 2020. At the end of this three month period, however, the accumulated interest for the deferment period would have to be paid along with the installment due in the fourth month. This is unlike in the case of term loans, where the loan tenor and repayment gets shifted across the board by 3 months.
The same relief applies in the case of working capital loans as well, where the deferment in interest by three months will not result in any downgrade in the asset classification, or impact the credit score of the borrower.
Further, all lending institutions have also been allowed to recalculate “drawing power” by reducing margins and/or by reassessing the working capital cycle for borrowers in respect of working capital facilities. This relief will be available in respect of such changes effected up to 31st May 2020 and would have to be contingent on lending institutions satisfying themselves that the same is necessitated due to the economic fallout of the COVID-19 pandemic.
When do these relief measures come into effect?
All relief measures announced by the Reserve Bank of India come into effect immediately. Board of Directors and Key Management Personnel of lending institutions have been asked to ensure clear operative instructions are passed down to all staff regarding the implementation of these measures.
For our detailed RBI coverage, click here
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