Moratorium on Repayment of Term Loans & Working Capital Facilities

The Reserve Bank of India issued the following relaxations on terms loans and working capital facilities to alleviate the economic difficulties posed by COVID-19:

  • All commercial banks, co-operative banks, all-India Financial Institutions and Non-Banking Financial Companies are permitted to allow a moratorium of three (3) months on payment of all instalments falling due between March 01, 2020 and May 31, 2020. Accordingly, the repayment schedule and all subsequent due dates, as also the residual tenor for such loans, will be shifted across the board by three (3) months.
    Further, whenever the moratorium is granted on all the accounts classified as standard on February 29, 2020 (even if overdue) the moratorium period will be excluded by the lending institutions for the purpose of ‘asset classification’ under the Income Recognition and Asset Classification norms.
  • In respect of working capital facilities sanctioned in the form of cash credit/overdraft:
    • lending institutions are permitted to defer the recovery of interest applied in respect of all such facilities during the period from March 01, 2020 up to May 31, 2020. The accumulated accrued interest shall be recovered immediately after the completion of this period. The deferment period, wherever granted in respect of all facilities classified as standard (including Special Mention Accounts) as on February 29, 2020, will be excluded for the determination of out of order status.
    • lending institutions may recalculate drawing power by reducing margins and/or by reassessing the working capital cycle for the borrowers. This relief will be available in respect of all such changes effected up to May 31, 2020. It will be contingent on the lending institutions satisfying themselves that the same is necessitated on account of the economic fallout from COVID-19.
  • Wherever the moratorium or deferment is granted by any lending institution as aforesaid, such lending institution is required to make general provisions of not less than 10% of the total outstanding of such accounts, which will be phased across two quarters:
    • Quarter ending March 31, 2020 – not less than 5%;
    • Quarter ending June 30, 2020 – not less than 5%.
  • The abovementioned provisions will not be reckoned for arriving at net NPAs till they are adjusted against actual provisioning requirements and they can be later adjusted against the provisioning requirements for slippages from the accounts. The residual provisions at the end of the financial year can be written back or adjusted against the provision required for all other accounts. Further, till such adjustments, these provisions shall not be netted from gross advances but shown separately in the balance sheet as appropriate.
  • The lending institutions will have to give separate disclosures to RBI for the accounts that have been subjected to the abovementioned asset classification including, inter alia, the overdue status of the accounts, if any.
The relaxations, when granted by the lending institutions, will not be considered as changes in terms of loans agreements or changes due to financial difficulties of the borrower or beneficiaries. Therefore, it shall not result in asset classification downgrade or adversely impact the credit history of the beneficiaries.