Impact of covid-19 regulatory package announced by reserve bank of India

Reserve Bank of India (“RBI”) vide press releases dated March 27, 2020 issued a Statement on Developmental and Regulatory Policies that directly address the stress in financial conditions caused by COVID-19 pandemic. On the same day RBI vide notification DOR.No.BP.BC.47/ 21.04.048/ 2019-20 COVID-19 – Regulatory Package, issued detailed instructions to mitigate the burden of debt servicing and to ensure the continuity of viable businesses.

The COVID-19 Regulatory Package provides for “Rescheduling of Payments on Term Loans” - NBFCs are permitted to grant a moratorium of three months on payment of all instalments* 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.

* Instalments will include the following payments falling due from March 1, 2020 to May 31, 2020: (i) principal and/or interest components; (ii) bullet repayments; (iii) Equated Monthly instalments; (iv) credit card dues.

The moratorium is being provided specifically to enable the borrowers to tide over economic fallout from COVID-19, the same will not be treated as concession or change in terms and conditions of loan agreements due to financial difficulty of the borrower.

The asset classification of term loans which are granted relief shall be determined on the basis of revised due dates and the revised repayment schedule. The rescheduling of payments, including interest, will not qualify as a default for the purposes of supervisory reporting and reporting to Credit Information Companies (CICs) by the lender.

For the benefit of borrowers following are the FAQs on 3 months moratorium announced by RBI

All term loans outstanding as on March 1, 2020 may be permitted moratorium for 3 months on payment of instalments (principle and interest) which are due for payment between 1 March and 31 May 2020, at the option of the Lender.

Moratorium means the period during which Borrowers may opt to defer the payment of Instalments which are due for payment between 1 March and 31 May 2020. There are no penal charges levied during the moratorium period. In simple terms its deferment of the payment to provide some relief to borrowers facing liquidity issues during the COVID-19 pandemic.

Please note that the moratorium does not apply to interest charges. If you have Rs.1,00,000 as outstanding amount on March 1, 2020 and you take advantage of the moratorium till May 31, 2020, the outstanding amount on June 1, 2020 would be Rs.1,15,000 [(Rs. 1,00,000 (due amount) + Rs.15,000 (interest amount)].

No. Borrowers are required to submit requests for availing the 3 months moratorium. It is an optional facility, and if not applied for and approved by the Lender, the scheduled instalment amount will get deducted on due dates. In case, if a Borrower has already paid the amount due for March 2020 – he/she can avail moratorium for the remaining 2 months only.

The RBI has permitted lenders to offer the moratorium at their discretion. Lenders can define parameters of eligibility, if any and may permit borrowers to avail moratorium to help them tide over their liquidity issues due to the COVID-19 pandemic. However, the Lender reserves the right to grant relief and such decision to take on cases to cases basis taking into consideration factors including but not limited to the liquidity position of the borrower, behaviour of the account, among other factual information.

Borrowers, who wish to avail the 3 months moratorium shall submit a written request to the Lender at contact@dfltd. in with complete details of the loan viz., name of Borrower, loan account number, mobile no, period of moratorium sought and a brief note on the impact of the current lockdown on their business which is negatively impacting their ability to pay the instalments as per the repayment schedule.

No. Moratorium may be granted on the instalment amount i.e., both principal and/or interest components of the loan due between March 1, 2020 and May 31, 2020.

The instalment amount shall be repaid in 3 monthly instalments which would be in the form of extension of the repayment schedule by 3 months i.e., shifting the tenor of the loan, by three months. For Ex. If your last EMI was due in July, 2022 – on availing the moratorium the last EMI stands shifted by 3 months to October, 2022.

No. RBI had clearly notified that interest will continue to be charged on the outstanding amount during the 3 months moratorium period. Interest shall continue to accrue on the outstanding portion of the loan during the moratorium period. Except for the change in the repayment schedule, all the terms and conditions of the loan remain unchanged.

Yes – Availing moratorium is beneficial for those Borrowers facing liquidity issues and do not have regular cash flows, as the Borrower will get an additional period of 3 months for repayment of instalments due between March 1, 2020 and May 31, 2020. Further, there is no impact on Borrower’s credit history and penal charges if the Borrower had availed the moratorium facility.

No – Availing moratorium may not be financially beneficial for Borrowers who are not facing liquidity issues as interest on the outstanding loan amount shall continue to accrue even during the moratorium period. For Ex. Assuming a Borrower has an outstanding loan of Rs.30 lakhs @ RoI 8% with an EMI of Rs.30,000, then one month’s interest would approximately be Rs.20,000 [(30 lakhs * 8%)/12 months]. At the end of 3 months, availing moratorium may result in additional interest of approximately Rs.60,000.

Moratorium is not a waiver of any kind - interest will continue to accrue during the moratorium period. The interest due during the moratorium period will also get added to the outstanding amount and will increase the Borrower’s burden when the moratorium will get over and the Borrower starts paying EMIs. It is a prudent decision for a Borrower to opt for a moratorium only if the borrower is facing a liquidity crisis.