IBA outlines general issues related to RBI’s three-month moratorium on EMI, interest payment


NEW DELHI: The Reserve Bank of India announced a three-month moratorium on all temporary loans outstanding on March 1, 2020, and on working capital facilities.

The RBI allowed all credit institutions to offer borrowers a moratorium on repayment of all temporary loans. The moratorium also covered credit card fees for a period of three months. The moratorium concerned payment of all installments due between March 1, 2020 and May 31, 2020. However, it was also found that “during the moratorium, interest on the outstanding portion of the term loan continues to accrue”.

The Indian Banks Association (IBA) has answered a list of frequently asked questions about the technical details of the RBI moratorium.

Why did RBI announce the aid package?

The Reserve Bank of India has announced certain regulatory measures to reduce debt service disruption from the Covid 19 pandemic and ensure the continuity of viable companies. It has been considered that there may be a temporary disruption in cash flows and, in some cases, loss of income for businesses / individuals, and the measures available help to alleviate these businesses / individuals.

What facilities can take advantage of the RBI Covid 19 regulatory package and whether the facility will be extended to all borrowers?

All temporary loans (including agricultural temporary loans, retail loans, crop loans and pool purchase loans) and cash / overdrafts are eligible for the benefits of the package. This is available to all accounts that are standard as of March 1, 2020. In order to avoid unnecessary paperwork, the facility was extended to all borrowers by extending the repayment of the term loan installments (including interest) by 90 days. The original repayment period for fixed-term loans is extended by 90 days. A loan repayable in 60 installments due on March 1, 2025 will mature on June 1, 2025.

Does rescheduling apply to all types of temporary loans?

It applies to all temporary loans in all segments, regardless of the segment and the term of the temporary loans.

Is debt rescheduling only for the principal or does it include interest?

The debt can be rescheduled for a period of three months, which is due between March 1, 2020 and May 31, 2020. For example, if the last installment of a fixed-term loan is due for payment on March 1, 2020, it will be payable on June 1, 2020. For EMI-based fixed-term loans, three EMI are due between March 1, 2020 and May 31, 2020 , and the term is extended by three months and must be repaid during the extended period according to the example in (2) above.

For other temporary loans, all installments and interest are due that fall due in the same period, regardless of the payment duration, i.e. monthly, quarterly, semi-annually, annually, bullet payment, etc. For temporary loans where the repayment has not yet started alone the interest component for three months must be calculated.

What happens if the extended term of the loan goes beyond the maximum duration set for a product or set in the loan policy?

This can be extended for all such temporary loans without having to obtain variances or permits.

How are the interest rates for the operating facilities treated?

The recovery of interest on cash / overdrafts on March 31, April 30 and May 31, 2020 will be “postponed”. However, the total interest, together with the interest applied on June 30, 2020 and in cases where no monthly interest is applied, must be claimed back together with the next interest date.

What impact will RBI’s relief have on borrowers in reporting defaults?

Any delay in payment leads to default and will be reported to the credit bureaus. For business loans of Rs. 5 crores and higher, the banks also report the overdue position to the RBI via CRILC. Due to this aid package, the overdue payments after March 1, 2020 will not be reported to the credit reporting agencies / CRILC for three months. No penalty interest or fees are paid to the banks. Similarly, SEBI has allowed rating agencies (CRAs) to consider delays in listed companies as a non-standard if this is due to blocking conditions resulting from Covid-19.

That means companies / individuals should definitely take advantage?

You can take advantage of this package if your payment flows are disrupted or if you lose income. However, you have to take into account that the interest on the loans, although not due immediately and postponed for 3 months, will continue to accrue in your account and lead to higher costs.

Let’s say your outstanding loan is Rs 100,000 and you are charged a 12 percent interest rate on your loans. Then you are required to pay Rs every month. 1000 as an interest. If you choose not to service the interest every month, you will have to pay interest of 12 percent per annum. and accordingly you pay Rs. 3030.10 at the end of the 3rd month.

Similarly, if the interest rate is 10 percent, you will have to pay Rs. 833 am or Rs. 2521 after three months.

Should I get upset if bank employees or their collection agency contacts me for repayment?

You should not get upset and tell bank employees / collection agencies that you want to take advantage of the benefits that will be extended as part of the regulatory package.

What about my credit card fees?

The relief also applies to credit card payments. In the case of credit card fees, a minimum amount is payable, and if this is not paid, it will be reported to the credit bureaus. In view of the RBI circular, the overdue payments on the credit card account are not reported to the credit bureaus for three months.

However, the credit card issuer charges interest for unpaid amounts. You should check with your card provider to determine the interest payable. No penalty interest will be charged during this period, but you should be aware that the interest rate on credit card fees is usually much higher than on normal bank loans and you should make a decision accordingly.

What about the interchangeability from non-fund-based to fund-based or FB to NFB for companies?

The interest on the fund-based part of the interchangeability, which was used in the period from March 1 to May 31, 2020, is moratorial. With regard to new sanctions imposed and used during the period from March 1st, the interest applied to the fund-based part would be eligible.

What other ways have companies been relieved?

Companies can ask the bank to reassess their working capital needs due to a disruption in their cash flow or an extension of the working capital cycle. You can also request a reduction in the margin for NFB facilities (LCs / BGs, etc.) or an increase in security. The decision will be made by the bank branches on a case by case basis, based on the authenticity of the application.

Are NBFCs / MFIs / HFCs eligible for “working capital easing”?

They are currently not considered in the system. However, as part of the recently launched targeted longer-term refinancing operations, RBI has H. TLTRO, adequate liquidity support is provided for these financial intermediaries. The liquidity used by the banks under the system must be used in investment grade corporate bonds, commercial paper and non-convertible bonds that exceed the level of their investments in these bonds outstanding as of March 27, 2020.

Banks must purchase up to fifty percent of their additional holdings of eligible instruments from primary market issues and the remaining fifty percent from secondary markets, including mutual funds and non-bank finance companies. Bank investments under this facility are held to maturity (HTM), even if more than 25 percent of the total investment may be included in the HTM portfolio. Exposures under this facility are also not considered in the large exposure. Banks can support NBFCs / MFIs / HFCs etc. in this window and we do not see any liquidity bottleneck for these financial intermediaries.

Are all of these RBI measures treated as “restructuring”? What about the applicable regulations?

The measures set by RBI as part of the COVID 19 regulatory package of March 27, 2020 are not treated as “restructuring” and therefore do not result in a downgrading of the classification of assets. Accordingly, the expanded terms for restructured accounts do not apply.

What about installments / EMIs that are restored via SI / ECS / AFTER? How will the rate / EMI reimbursement be made if requested by the borrower?

Please contact your bank for the revised mandate, says the IBA.