COVID-19 Regulatory Forbearance Clarifications

Please find the detailed clarification of the regulatory measures announced by RBI
to mitigate the burden of debt servicing brought about by disruptions on account
of COVID-:

(A) Rescheduling of Payments – Term Loans and Working Capital Facilities

1. In respect of all term loans (including agricultural term loans, retail ie home loans,
personal loans, education loans, auto loans, LAP, consumer durable loans and any
loans which have a fixed tenure. and crop loans), Banks and NBFCs are permitted
to grant a moratorium of three months on payment of all instalments1 falling due
between March 1, 2020 and May 31, 2020.

-The repayment schedule for such loans along with the residual tenor, will be
shifted by three months after the moratorium period.

-Kindly note that EMI’s are not waiver and interest shall continue to accrue on the
outstanding portion of the term loans during the moratorium period and only the
repayment is extended in terms of the tenor.

-Credit cards are also covered in the above.

NOTE:
Moratorium is not a waiver of any kind. So, your interest will continue to accrue
for the time period of the moratorium. Also, the interest due during the period
of moratorium will also get added to your outstanding amount and therefore
will increase your burden when the moratorium will get over and you will start
paying your EMIs. Therefore, you should opt for it only if you are facing a
liquidity crisis else it will be better if you continue paying your EMIs regularly.

2. In respect of working capital facilities (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 (“deferment”). The
accumulated accrued interest shall be recovered immediately after the completion
of this period.
The interest for March, April, & May can be recovered from 1 st June onwards.

B) Easing of Working Capital Financing

1. For working capital facilities 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 .

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-The availability of this relief depends on the internal assessment of the bank
satisfying themselves that the same is necessitated on account of the economic
fallout from COVID-19.
-RBI on its part will review such relaxations to check that they are not being misused
by the Bank.

(c) Classification as Special Mention Account (SMA) and Non-Performing Asset

(NPA)
1. The above relaxations will not be treated as concession or change in terms and
conditions of loan agreements due to financial difficulty of the borrower and shall
not result in asset classification downgrade for banks classification or rating
classification.

2. Also above, will not lead to classification into SMA and will not adversely impact
the credit history of the beneficiary borrowers.

NOTE:
o Lending institutions shall have to frame polices for providing the
above-mentioned reliefs to all eligible borrowers with due approval
from their boards. Hence you need to seek information on the
implementation from your respective bank through its officers or
websites.

o The instructions in the RBI circular are required to be implemented

with immediate effect and hence it is mandatory for banks to issue
clear instructions to their staff regarding its implementation.

o It is important to understand though the moratorium covers all

payments due between 1 March and 31 May. However many
borrowers have already paid their instalment for the month of
March as ECS mandate for EMIs hit in the first week of the month.
So, if you have already paid the EMIs or credit card dues for the
month of March, you will get the benefit of only two months.

Warm Regards,

Research Desk

For more updates & information, mail your queries at info@solveraconsulting.com

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