The Reserve Bank of India (RBI) has extended the repayment moratorium of loan repayment for term loans by another three months, till August 31. The earlier three-month moratorium was ending on May 31. This extension makes it a six-month moratorium on term loan EMIs starting from March 1, 2020, to August 31, 2020. The Reserve Bank of India (RBI) has said an estimated amount of Rs.38.68 lakh crores of the total 100 lakh crores worth of loan outstanding in the banking system are now under six- month moratorium as a part of COVID- 19 relief package.
The extension of three- month moratorium on repayment of term loans means that borrowers would not have to pay the loan EMI installments during the moratorium period. The extension of the moratorium period will provide relief for many individuals, especially the self- employed, as they would have found it difficult to pay their loans like car loans, home loans, etc., due to the loss of income amid the nationwide lockdown that started from March 25, 2020, to stop the outbreak of the pandemic. Missing an EMI payment would mean risking adverse actions by the bank which can severely impact one’s credit score.
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RBI has announced certain regulatory measures, firstly about a grant of the 3-month moratorium on term loan installments. Second, deferment of interest for 3 months on working capital facilities; third, easing of working capital financing requirement by reducing margins or re-assessment of working capital cycle; fourth, exemptions from being classified as a defaulter in supervisory reporting or reporting to credit Information Company; fifth, the extension of resolution timelines for a stressed asset; sixth, asset classification stands still by excluding the moratorium period of 3 months. The decision of the MPC to reduce the policy repo rate and maintain the accommodative stands of the monetary policy provides the opportunity for the RBI to announce certain additional measures against the backdrop of a deteriorating outlook for economic activity. These policy actions strengthen and complement each other in intending and reach.
The measures being announced today can broadly be divided under four categories, measures to improve the functioning of the market and market participants, measures to support exports and imports, efforts to ease further stress caused by COVID- 19 disruptions by providing relief on date servicing and improving access to working capital, steps to ease financial constraints faced by the state governments. Measures to improve the functioning of markets involve SIDBI SPL refinancing of the facility rolled for another 90 days. FPI investment under voluntary retention route extended by another 3 months. The effort to support export by the RBI includes a maximum permissible period of pre or post-shipment of export credits should be increased. Extension of credit line of Rs.15K Crore to Exim bank for a period of 90 days will roll over up to 1 year. The effort to support import by the RBI involves the extension of the payment time for import from 6 to 12 months from the shipment date. Group exposure limit of the bank is being increased from 25% to 30% of eligible capital rates for enabling the corporates to meet their funding requirement from banks. RBI has also provided relaxation guidelines for consolidated sinking funds of the state
While most of the PSBs are yet to declare the percentage of the moratorium, the two big banks have recently announced a higher percentage share of loans under the moratorium book. Bank of Baroda has declared 65% roughly of its loan book under moratorium and IDBI bank have also declared a high moratorium book share of 65- 70%. As a part of the COVID- 19 relief of six-month moratorium to borrowers, banks are losing month cash inflows of Rs.33, 500 crores in deferred interest. Cash flow hit for six- month moratorium would be Rs.2 lakh crores.
The RBI thus has disclosed these Rs.2 lakh crore interest losses during the six- month moratorium in response to public interest litigation filed for a complete waiver of interest in the Supreme Court. The RBI has said that “Any waiver of interest would have huge consequences for the stability of the entire financial system.”