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Additional Extension of EMI Moratorium

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., 1^st March 2020 to 31^st May 2020) on payment of term loan instalments in respect of all the term loans outstanding as on 1^st March 2020.

Recently, vide circular dated 23^rd 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-

1. 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 31^st 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 31^st 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., 1^st March 2020 to 31^st August 2020 into a funded interest term loan. Such a funded interest term loan should be repaid within 31^st 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 31^st 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.