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By Venture Briks

RBI’s loan EMI moratorium proposal for borrowers: Here’s all you need to know !

April 07, 2020

COVID-19 has done enough damage to the world. The death toll is rising, the infected number of people is more every passing day, countries are on lockdown, markets have crashed, the economy is witnessing its worst phase, and people don’t have any clue about when this is going to end. With an indefinite period of crisis, and lockdown announced, people are sitting at home, obviously worrying about their future. Experts have predicted a global recession already, and we are not surprised. With the current scenario of things, one can not expect things to get better anytime soon. Given this, the central government of India has announced some significant reliefs for the citizens by extending the deadlines of taxes and returns. Coming to the support of this, the Reserve bank of India has also announced the EMI moratorium period of at least three months, which has caused a significant relief to the majority of the population. The pandemic has offices shut down, and people are working from home, but are equally worried if the job stays for a longer time, or regarding the paycheque delivered on the salary day.

This moratorium period of 3 months will help people to worry less about the expenditure on monthly installments of term loans, of any kind.

That being said, RBI also released the requisite details regarding the decision and let us help you in understanding that by putting up the most common frequently asked questions and answers below. Have a detailed look at them and get your problems solved.

  • Why has the RBI announced the relief package?
  • These regulatory methods are announced to alleviate the burden of debt servicing on account of pandemic COVID-19. It is believed that due to the temporary disruption in work, there might be a liquidity crunch and loss of income in some cases. This measure will bring relief to the business workers, servicemen.

  • Which are the facilities eligible for availing the benefits under the RBI Covid19 regulatory package and whether the facility is extended across the board to all borrowers?
  • The facility is extended to all term loans that also includes Agricultural Term Loans, Retail, Crop Loans, and loans under Pool Purchases. The credit card dues are also eligible to avail of the benefits for three months. The repayment facility has also been extended by 90 days on term loan installments that also includes interest. This is eligible for the standard assets as of 1st March 2020. This simply means that the maturing period will be extended by three months.

  • Is rescheduling of payments applicable for all kinds of Terms Loans?
  • Yes. It is applicable to all term loans, regardless of the segment and the tenor of the term loans.

  • Is rescheduling of Term Loans only for Principal amount, or it also includes interest?
  • Rescheduling of Principal amount has been done for 90 days, applicable from 1st March 2020. That means if your EMI is due on 1st March 2020, it will be payable on 1st June 2020. So for the EMI based term loans, the three EMIs falling due between 1st March 2020 and 31st May 2020, will be continued from 1st June 2020. The interest in the three months will be quantified.

    For other term loans, it will be all the installments and interest due during the three months, regardless of its tenor of payment.

  • What happens if the extended Tenor of Term Loan goes beyond the maximum period stipulated for a Product or as stipulated in the Loan Policy?
  • This can be extended according to the situation, without seeking any approvals.

  • What will be the treatment of interest on the Working Capital facilities?
  • The rescovery interest applied to the credit dues on these three months is right now deferred. It will be recovered with the interest to be applied on 30th June 2020 or along the next date of interest.

  • What will be the impact of this relief by RBI on borrowers as far as reporting of default is concerned?
  • Any delay in payment leads to default and gets reported to Credit Bureaus. For business loans of Rs. 5 Crores and above, the Banks report the overdue position to RBI also through CRILC. As a result of this relief package, the overdue payments post 1st March 2020 will not be reported to Credit Bureaus/ CRILC for three months. No penal interest or charges will be payable to the Banks. Similarly, SEBI has allowed that Credit Rating Agencies (CRAs) may not consider the delay as default by listed companies if the same is owing to lockdown conditions arising due to Covid-19.

  • That means Businesses/ Individuals should necessarily take the benefit?
  • This totally depends on the individual. The relief package is to benefit people who might suffer disruption in cash flows or loss of income. But, you must know that the interest on the loans will continue to accrue on your account that would result in paying more than the usual.

    For instance, if your loan outstanding is Rs. 100,000 with a payable interest rate of 12 percent, you are supposed to pay Rs. 1000 as interest every month. Now, if you choose to opt for the relief package, then you will have to pay Rs. 3,030 at the end of 3rd month (not mandatorily payable immediately).

  • Should I get upset if any bank staff or its collection agent approach me for repayment
  • No. you just have to ask them to avail the benefit of extension under the regulatory package.

  • What about my credit card dues?
  • The relief is applicable on credit card payments also. There is a requirement to pay the minimum amount which gets reported to credit bureaus if not paid. According to the RBI circular, the overdues in the credit card account do not get reported to the credit bureaus for a period of three months. However, interest will be charged by the credit card issuer on an unpaid amount. Get connected with your card provider to arrive at interest payable. Also, no penal interest will be charged during this period. But you must take into account that the interest rate on credit card dues are normally much higher compared to normal bank credit and you should take a decision accordingly.

  • What about interchangeability being permitted from non-fund based to fund based or FB to NFB for businesses?
  • The interest applied on the fund based portion of interchangeability availed during the said period of 1st March to 31st May 2020 will be eligible for moratorium. In respect of new sanctions accorded from 1st March and availed during the period, the interest applied on the Fund based portion would be eligible.

  • In what other ways, businesses have been given relief?
  • The businesses may request the bank to reassess their working capital requirements on account of disruption of their cash flows or elongation of working capital cycle. They may also request for reduction in margin on NFB facilities (LCs/ BGs etc) or also relief in Security. Decisions will be taken by the bank branches on a case-to-case basis based on the genuineness of the request.

  • Are NBFCs/MFIs/HFCs eligible under the “easing of working capital financing”?
  • At present, they are not being considered under the scheme. However, RBI has made provision for sufficient liquidity support to these financial intermediaries under recently introduced Targeted Longer-term Refinancing Operations i.e. TLTRO. Liquidity availed under the scheme by Banks has to be deployed in investment grade corporate bonds, commercial paper, and non-convertible debentures over and above the outstanding level of their investments in these bonds as on March 27, 2020.

    Banks shall be required to acquire up to fifty per cent of their incremental holdings of eligible instruments from primary market issuances and the remaining fifty per cent from the secondary market, including from mutual funds and non-banking finance companies. Investments made by banks under this facility will be classified as held to maturity (HTM) even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio. Exposures under this facility will also not be reckoned under the large exposure framework. Banks will be able to support NBFCs/ MFIs/ HFCs etc. under this window and we do not foresee liquidity squeeze for these Financial Intermediaries.

  • Will all these measures of RBI be treated as “restructuring”? What about the provisions applicable?
  • The measures stipulated by RBI under the March 27, 2020 circular on COVID-19 Regulatory Package will not be treated as “restructuring” and hence will not result in asset classification downgrade. Accordingly, the enhanced provisions for Restructured Accounts will not apply.

  • What about installments/EMIs being recovered through SI/ECS/NACH? What will be the procedure for refund of the installment/EMIs, if demanded by the borrower?
  • Please get in touch with your bank for the revised mandate