Regulatory package issued by the Reserve Bank Of India to combat COVID-19

Reserve Bank of India (RBI) on March 27, 2020 announced a Regulatory Package on COVID-19 to tackle the impact of deadly Coronavirus on Indian Economy. From Repo Rate & CRR Cuts to 3-months moratorium on term loans, RBI Governor Shaktikanta Das announced several measures which directly impacted the financial sector.

Reserve Bank of India vide RBI/2019-20/186,DOR.No.BP.BC.47/21.04.048/2019-20 dated 27.03. 2020 (hereinafter referred as “Regulatory Package”), permitted all Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks), All Primary (Urban) Co-operative Banks/State Co-operative Banks/ District Central Co-operative Banks, all All-India Financial Institutions and all Non-Banking Financial Companies (including Housing Finance Companies) Banks to declare a three-month moratorium on all term loans outstanding as on March 1, 2020, as well as on working capital facilities.

The Reserve Bank of India announced the said Regulatory Package with the objective 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. It was felt that there may be a temporary disruption in the cash flows, and in some cases loss of income, for the businesses/ individuals and the present measures work to bring relief to those businesses / individuals.

It was clarified by the Reserve Bank of India that the Regulatory Package was available to all such accounts, which are standard assets as on 1st March 2020. Further, to avoid unnecessary paperwork it was extended across the board to all the borrowers by extending repayment of term loan instalments (includes interest) by 90 days i.e. the original repayment period for term loans will get extended by 90 days e.g. a loan repayable in 60 instalments maturing on 1st March 2025 will mature on 1st June 2025. However, it was clarified that the interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.

Further for the purposes of Classification as Special Mention Account (SMA) and Non-Performing Asset (NPA), the Reserve Bank of India clarified that the asset classification of term loans which are granted relief in terms of the Regulatory package shall be determined on the basis of revised due dates and the revised repayment schedule. Similarly, working capital facilities, the SMA and the out of order status shall be evaluated considering the application of accumulated interest immediately after the completion of the deferment period as well as the revised terms.

Key highlights of the Regulatory Package are set out below:

• The moratorium is applicable only with respect to repayments, and interest will continue to accrue on the outstanding portion of the term loans during the Moratorium Period.
• No penal interest or charges will be payable to the banks.
• The recovery of Interest applied to cash credit/overdraft on 31st March, 30th April and 31st May 2020 is being ‘deferred’ and the same shall be payable post three months.
• 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.
• In view of the RBI circular, the overdues in the credit card account do not get reported to the credit bureaus for a period of three months.
• 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.
• Institutions must abstain from sending bank staff/ collection agent to the Borrowers for the purposes of collections in case the Borrower is availing the benefit of the regulatory package.