Covid-19 loan scheme

The lockdown induced by the Covid-19 pandemic has proved a tsunami for businesses, be it big or small. Every sector of economy has been hit where earnings have either drastically come down or have stopped flowing in. We have witnessed huge loss of jobs and at the same time, most of the small businesses stand on the verge of collapse.

For example, small businesses in retail segment are helpless amid crumbled operations due to this deadly human consuming coronavirus outbreak. As per a survey by the retail trade body Retailers Association of India, small retailers are likely to lay off 30 per cent of their employee strength ahead while medium retailers are expected to cut 12 per cent of their manpower. To sustain the onslaught of Covid-19 pandemic, the small business desperately seek support for salary component of their units, a larger amount for sustaining business, relief in interest rates, and a better moratorium for EMI (equated monthly installments) repayments.

Precisely, small and medium retailers need a strong financial support from the government. These businesses are in need of more working capital to sustain and bear their fixed costs etc. to keep going. Some of them may be earning revenues, some of them not depending on the sector. Here it’s the role of banks to intervene through tailor-made schemes to let these crumbling businesses rebuild and stay alive.

As far as the scenario in J&K is concerned, the challenges thrown by the COVID-19 pandemic are not different. In fact, these assume serious dimensions as the region has been witnessing worst economic scenario, especially since August 2019 when Article 370 was scrapped. All sectors of the economy particularly tourism, hospitality, transport, retail, construction, entertainment and others have been severely impacted. The outbreak has also impacted manufacturing sectors due to large scale factory shutdowns and shortage of raw materials and components.

It’s here J&K Bank, which is a lead bank in the region, rolled out a tailor-made Covid 19 Working Capital Demand Loan (CWDL) Scheme to help the businesses to stay alive amid this unprecedented pandemic situation. The scheme is hassle-free wherein additional facilities to the extent of 10% of existing fund based working capital limit are extended to the borrowers for meeting their emergent business requirements.

What’s the nature of Covid 19 Working Capital Demand Loan (CWDL) Scheme?

The Scheme, launched by the J&K Bank for its customers, is a demand loan scheme. The purpose of the facility is to help the borrower to meet the temporary liquidity mismatch arising out of Covid-19 pandemic. It’s available for a limited period, upto June 30, 2020 and shall stand withdrawn thereafter. In other words, loans under the scheme can be sanctioned & disbursed only upto 30.06.2020.

Who are eligible to avail the facility?

All existing borrowers of the bank availing working capital facilities (CC/SOD) which are standard & have not been classified as SMA-1 or 2 as on 16.03.2020 are eligible to avail benefits under the scheme. Notably, the businesses should have been impacted by COVID-19 pandemic.

Borrowers availing working capital from the bank under Multiple Banking Arrangement (MBA) can avail the facility subject to production of NOC from other lenders under MBA.

What is the amount of loan granted under the facility?

The loan amount would be 10% of the existing Fund Based Working Capital Limit (FBWC) subject to a maximum of Rs 20.00 crores. Notably, the limit will be over and above the existing assessed Bank finance.

Since the facility is for a limited period, the loan granted under the scheme is to be repaid in six equated monthly installments after initial moratorium period of 06 months from the date of first disbursement of the loan.

What about the application of interest during the period of moratorium?

The interest applied in the accounts is to be recovered on actual basis from the borrower as and when applied. In line with the RBI instructions the recovery of interest applied till May 31, 2020 shall be deferred. The accumulated accrued interest shall be recovered immediately after the completion of this period.

Remarkably, the rate of interest at the moment charged on this facility is as low as 8.35%.

What is nature of security which the borrower has to offer for availing the facility?

The facility would be granted on extension of charge on existing primary/ collateral security.

Are private educational institutions eligible for the scheme?

Yes. The bank has devised a separate scheme for private educational institutions in J&K to help them to meet the temporary cash flow mismatch arising out of Covid-19 pandemic.

All government registered/recognized private educational institutions maintaining their accounts with J&K Bank & whose cash flows have been impacted by COVID-19 pandemic are eligible to avail the benefits under the scheme. However, the loan limit is restricted to Rs.One crore, where minimum finance is Rs.5.00 lakhs. The quantum of finance is linked to 06 months total expenditure towards salaries to staff & other miscellaneous expenditures.