RBI – Statement on Development and Regulatory Policies

The Reserve Bank of India (RBI) has issued a statement on the development and regulatory policies, vide press release dated 22

nd May 2020. The statement majorly targeted improving the functioning of the market, support imports and exports, and easing up the financial stress triggered by the COVID-19. The current article critically evaluates the said measures announced by the RBI.

Measures announced to improve the functioning of the markets

Refinancing facility for SIDBI-

RBI has announced a particular refinance facility of INR 15,000 crore to the Small Industries Development Bank of India (SIDBI) for on-lending or refinancing. The said facility has been rolled over for another period of 90 days.

Investments by FPIs under VRR-

As per the norms, the Foreign Portfolio Investors (i.e., FPIs) are required to invest at least 75% of their Committed Portfolio Size within three months from the date of allotment of the investment limits. As a relief measure, RBI has granted an additional time period of three months for FPIs who have been allotted investment limits between 24

th January 2020 and 30th April 2020.

Measures announced to support imports and exports

Extension of time for payments for imports-

An extension has been provided towards the time period for completion of remittances against normal imports in India from six months to twelve months from the date of shipment. The extension is available to imports made on or before 31

st July 2020. However, the extension is not available to the cases, wherein the amount is withdrawn towards the guarantee of performance.

Export Credit-

The maximum allowable period of pre-shipment and post-shipment export credit certified by banks has been increased from one year to 15 months. The extension is available to disbursements made up to 31

st July 2020.

Liquidity facility for Exim Bank of India-

RBI has decided to extend a line of credit of INR 15,000 crore to the Exim Bank of India for a period of 90 days from the date of availment with maximum period roller up of one year. This step will enable the Exim bank to avail US dollar swap facilities to meet its foreign exchange requirements.

Measures announced to ease financial stress

Suspension of Term Loan Instalments-

RBI had already permitted all the commercial banks, co-operative banks, financial institutions, and NBFCs to allow suspension of instalments for three months. The announcement applied to all the term loans outstanding as on 1

st March 2020. However, the RBI has extended the suspension period by another three months, i.e., from 1st June 2020 to 31st August 2020. Additionally, relief has also been provided by stating that such suspension will not result in asset classification downgrade.

Postponement of interest on working capital facilities-

The regulatory package allowed the lenders to postpone the recovery of interest on working capital facilities sanctioned during the period 1

st March 2020 to 31st May 2020. The facility of postponement of interest has now been deferred for another period of three months i.e., from 1st June 2020 to 31st August 2020. Additionally, in order to further reduce the burden of the borrowers of repaying the accumulated interest of deferred period in one shot, lenders are permitted to-

Convert the accumulated interest on working capital facilities over the postponement period (i.e., 1st March 2020 to 31st August 2020) into a funded interest term loan.
The borrowers should repay such funded interest term loan within 31st March 2021.

Further, RBI has also declared that such postponement will not result in asset classification downgrade. As the same will not be treated as concessions granted due to the financial difficulty of the borrowers.

Easing of working capital financing-

The lenders are permitted to recalculate the drawing power by reducing the margin or by reassessing the working capital cycle. The relief was initially available up to 31

st May 2020. However, the same is now extended up to 31st August 2020.

Limit on Group Exposure under Large Exposures Framework-

As per guidelines of the Large Exposures Framework, the exposure of a bank to a group of connected counterparties should not be more than 25% of the eligible capital base of the bank. However, on account of COVID-19 outbreak the corporates are currently facing difficulty in raising funds from the capital market and are predominately dependent on bank’s funding. Henceforth, as a one-time measure, RBI has increased the exposure limit from 25% to 30%. The increased limit will be applicable up to 30

th June 2021.

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Frequently Asked Questions

Common questions about RBI Statement on Development and Regulatory Policies India.

The refinancing facility of INR 15,000 crore announced by RBI for SIDBI is aimed at providing liquidity support to small industries. SIDBI can use this facility for on-lending or refinancing purposes, which will help small industries in accessing credit during the COVID-19 crisis.

FPIs are typically required to invest at least 75% of their committed portfolio size within three months from the date of allotment of investment limits. However, RBI has granted an additional time period of three months for FPIs who were allotted investment limits between January 24, 2020, and April 30, 2020, to meet this requirement, considering the COVID-19 situation.

RBI has extended the time period for completion of remittances against normal imports in India from six months to twelve months from the date of shipment. This extension is applicable for imports made on or before July 31, 2020, and is aimed at providing relief to importers during the COVID-19 pandemic.

RBI has increased the maximum permissible period for pre-shipment and post-shipment export credit sanctioned by banks from one year to 15 months. This extension is applicable for disbursements made up to July 31, 2020, and will provide additional liquidity support to exporters during the COVID-19 crisis.

RBI has extended a line of credit of INR 15,000 crore to the Exim Bank of India for a period of 90 days, with a maximum rollover period of one year. This facility will enable Exim Bank to avail US dollar swap facilities and meet its foreign exchange requirements, thereby supporting the bank's operations during the pandemic.

RBI had earlier permitted the deferment of term loan instalments for three months (March 1, 2020, to May 31, 2020). This has now been extended by another three months, i.e., from June 1, 2020, to August 31, 2020. Additionally, RBI has clarified that such deferment will not result in asset classification downgrade for the borrowers.

RBI has allowed lenders to postpone the recovery of interest on working capital facilities sanctioned during March 1, 2020, to May 31, 2020. This facility has now been extended for another three months, i.e., from June 1, 2020, to August 31, 2020. Furthermore, lenders can convert the accumulated interest during this period into a funded interest term loan, which borrowers can repay by March 31, 2021.

RBI has permitted lenders to recalculate the drawing power by reducing the margin or reassessing the working capital cycle. This relief, initially available until May 31, 2020, has now been extended until August 31, 2020, to provide additional liquidity support to businesses during the pandemic.

As per the Large Exposures Framework, a bank's exposure to a group of connected counterparties should not exceed 25% of the bank's eligible capital base. However, as a one-time measure, RBI has increased this limit to 30% until June 30, 2021, to provide additional credit support to corporates facing difficulties in raising funds from capital markets due to the COVID-19 outbreak.

The measures announced by RBI in the Statement on Development and Regulatory Policies are aimed at improving the functioning of markets, supporting imports and exports, and easing the financial stress triggered by the COVID-19 pandemic. These steps are intended to provide liquidity support, credit relief, and regulatory relaxations to businesses, individuals, and financial institutions impacted by the economic challenges posed by the pandemic.