By CNBC-TV18 Mar 27, 2020 7:39:30 PM IST (Updated)
The Reserve Bank of India (RBI) on Friday permitted all lending institutions to allow a three month moratorium on payment of installments of term loans outstanding on March 1, 2020.
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This story has been updated to incorporate latest developments.
The Reserve Bank of India (RBI) on Friday permitted all lending institutions to allow a three month moratorium on payment of installments of term loans outstanding on March 1, 2020.
In a policy statement, RBI Governor Shaktikanta Das said, "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 and micro-finance institutions) are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020."
The moratorium is the biggest announcement made by the RBI from a consumer standpoint, analysts said.
The central bank said that lending institutions will have to put in place board approved policies on the moratorium or the deferment.
Later in the day, RBI held another press briefing and clarified the following points.
All lending institutions permitted to grant three-month moratorium on all term loans (including agriculture term loans, retail and crop loans) falling due between March 1, 2020 and May 30, 2020.
Repayment schedule for such loans will be shifted across the board by three months after the moratorium period.
Interests will continue to accrue on the outstanding portion of the term loans during the moratorium period.
For working capital facilities, lending institutions permitted to defer recovery of interest during the period March 1 and May 31, 2020. Accumulated accrued interest will be recovered immediately after the completion of the three-month period.
Lending institutions can recalculate "drawing power" by reducing margins/reassessing working capital cycle. This relief will be available for all such changes effected up to May 31.
Easing of working capital facilities contingent on lending institutions satisfying themselves that the same is necessitated due to COVID-19 fallout
Moratorium/deferment to enable borrowers to tide over COVID-19 related crisis to not be treated as change in terms of loan agreement.
Such measures will not result in asset classification downgrade. Rescheduling of payments will not qualify as default, RBI clarified.
Instalments will include the following payments falling due from March 1, 2020 to May 31, 2020:
Other conditions:
Lending institutions to frame board approved policies for providing relief to all eligible borrowers. Bank boards to frame objective criteria for considering these reliefs.
The deferment of interest payment will not result in asset classification downgrade, the governor said.
"There will be no adverse impact on the credit history of the beneficiary," Das said while making the monetary policy statement.
The Monetary Policy Committee (MPC) was scheduled to meet on April, but the coronavirus impact has led the RBI's to enhance his rate-setting committee meet.
The committee also reduced the benchmark repo rate by 75 basis points to 4.40 percent and cut the reverse repo cut by 90 bps to 4 percent.