Additional Extension Of Emi Moratorium

As a relief measure, the Reserve Bank of India, on 27

th March 2020, permitted all the commercial banks, rural banks, co-operative banks, Financial Institutions, and Non-banking Financial Corporations to allow moratorium of 3 months (i.e., 1st March 2020 to 31st May 2020) on payment of term loan instalments in respect of all the term loans outstanding as on 1st March 2020. Recently, vide circular dated 23rd May 2020, the Reserve Bank of India (i.e., RBI) has announced a further extension of regulatory measures in the view of the economic disruptions caused on account of COVID-19. The relief measures announced vide the said circular is taken up and explained in the present article.

Recent relief measures announced by RBI

Various reliefs announced by the RBI vide circular dated 23

rd May 2020 are explained hereunder-

Re-scheduling of term loan payment-

Adding the relief, the Reserve Bank of India has permitted all the commercial banks, rural banks, co-operative banks, Financial Institutions, and Non-banking Financial Corporations to extend the moratorium by a further period of three months i.e., 1

st June 2020 to 31st August 2020. The extension is available on payment of the instalments in terms of term loans, agricultural term loans, retail loans, crop loans. It is crucial to note that, despite of the moratorium of EMI, the interest shall continue to accrue (grow) on the outstanding portion of the loans during the moratorium period.

Re-scheduling of working capital facilities

The lending banks/ institution are allowed to facilitate the deferment/ postponement of additional three months i.e., 1

st June 2020 to 31st August 2020 of the working capital made available in the form of Cash Credit (CC) or Overdraft (OD). Accordingly, the lending banks/ institutions are also permitted to convert the accumulated balance of interest on the working capital facilities over the total deferment period of 6 months i.e., 1st March 2020 to 31st August 2020 into a funded interest term loan. Such a funded interest term loan should be repaid within 31st March 2021.

Easing of working capital financing

The lending banks/ institution has also been permitted to recalculate the drawing power by reducing the margins untill 31

st August 2020. Pertinently, drawing power refers to the withdrawal limit allowed for a company from the sanctioned working capital. Further, the lending banks/ institution has also been permitted to review the working capital sanctioned limits up to 31st March 2021.

Re-scheduling of asset classification

Following conversion/ changes will not be treated as concessions granted due to financial difficulty and accordingly will not result into downgrade of asset classification-

Conversion of accumulated interest in the funded interest term loan.
Changes in the credit terms.

Consequently, the asset classification shall be determined based on the revised additional reliefs allowed.

Conclusion

The extension of EMI moratorium and other additional reliefs announced by the Reserve Bank of India will surely provide assistance to those facing difficulty in repayment of loans on account of lack of cashflow and income disruptions. Notably, the postponement of the loan will neither incur penal charges nor will impact the credit score, but the interest cost will continue on the outstanding loan amount even during the moratorium period.

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Frequently Asked Questions

Common questions about Additional Extension of EMI Moratorium.

The Reserve Bank of India (RBI) has announced an extension of the moratorium on term loan instalments and working capital facilities by an additional three months, from June 1, 2020, to August 31, 2020. This is in addition to the initial three-month moratorium granted from March 1, 2020, to May 31, 2020, as a relief measure due to the economic disruptions caused by COVID-19.

The EMI moratorium extension is applicable to all commercial banks, rural banks, cooperative banks, financial institutions, and non-banking financial corporations (NBFCs). It covers term loans, agricultural term loans, retail loans, crop loans, cash credit, and overdraft facilities.

Yes, the interest will continue to accrue on the outstanding portion of the loans during the moratorium period, even though the payment of instalments is deferred.

Banks and financial institutions are allowed to defer the payment of interest on working capital facilities like cash credit and overdraft for the period from March 1, 2020, to August 31, 2020. The accumulated interest can be converted into a funded interest term loan, which needs to be repaid by March 31, 2021.

The conversion of accumulated interest into a funded interest term loan and changes in credit terms due to the moratorium will not be treated as concessions granted due to financial difficulty. Therefore, it will not result in the downgrade of asset classification.

Yes, banks and financial institutions are permitted to recalculate the drawing power by reducing the margins until August 31, 2020. They can also review the working capital sanctioned limits up to March 31, 2021.

No, the postponement of loan repayments due to the EMI moratorium will not incur penal charges or impact the credit score of borrowers.

The EMI moratorium is an optional relief measure provided by the RBI. Borrowers can choose to avail the moratorium or continue with their regular loan repayments.

The EMI moratorium extension provides relief to borrowers facing cash flow challenges and income disruptions due to the COVID-19 pandemic. It allows them to defer their loan repayments and manage their finances more effectively during these difficult times.

The RBI has not specified any deadline for borrowers to avail the EMI moratorium extension. However, it is advisable to consult with the respective banks or financial institutions to understand the process and applicable timelines.