COVID-19 Relief Package by the RBI

The Reserve Bank of India announced measures to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses.

The following are some of the measures provided by the Reserve Bank of India.

Moratorium of three months

In respect of all term loans,  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) (“lending institutions”) are permitted to grant a moratorium of three months on payment of all installments falling due between March 1, 2020 and May 31, 2020.

The repayment schedule for such loans as also the residual tenor will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.

Deferement of Interest in respect to working capital requirement

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 1, 2020 upto May 31, 2020 .The accumulated accrued interest shall be recovered immediately after the completion of this period.

Easing of Working Capital Financing

Lending institutions may recalculate the ‘drawing power’ by reducing the margins and/or by reassessing the working capital cycle. This relief shall be available in respect of all such changes effected up to May 31, 2020 and shall be contingent on the lending institutions satisfying themselves that the same is necessitated on account of the economic fallout from COVID-19.

Further, accounts provided relief under these instructions shall be subject to subsequent supervisory review with regard to their justifiability on the same grounds.

The instructions provided by Reserve Bank of India will come into force with immediate effect. Their notification mentions that the Board of Directors and the key management personnel of the lending institutions shall ensure that the instructions are properly communicated down the line in their respective organisations, and clear instructions are issued to their staff regarding their implementation.

Official Notification: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11835&Mode=0