COVID-19: Regulatory Package

Reserve Bank of India (RBI) announced a regulatory package on March 27 to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses. Greater Kashmir has continuously been receiving queries of multiple natures seeking clarification about the regulatory package announced by the RBI and its implementation by the banks operating in Jammu & Kashmir. Here is the nitty gritty of the package in accordance with various questions asked by a cross section of  readers:

Which loans are eligible under the package?

All term loans (including agricultural term loans, retail and crop loans) and cash credit/overdraft are eligible to avail the benefit under the package. The facility is available to all such accounts, which are standard assets as on 1st March 2020 and stands extended across the board to all the borrowers by extending repayment of term loan instalments (including interest) by three months.

What is operational procedure of moratorium of three months?

A three-month moratorium announced by the RBI on all term loans is a repayment holiday of equated monthly instalments (EMIs) outstanding as on March 1, 2020. The moratorium period is also applicable to the working capital facilities. In simpler terms, the banks won’t deduct EMIs for the months of March, April & May 2020. The original repayment period for term loans will get extended by three months e.g. a loan repayable in 60 instalments maturing on 1st March 2025 will now get extended to 1st June 2025.

Are banks going to charge interest during the EMI holiday?

Yes, interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period. The recovery of Interest applied to cash credit/overdraft on March 31, April 30 and May 31, 2020 is being ‘deferred’. However, the entire interest will be recovered along with the interest being applied on June 30, 2020 and in cases, where monthly interest is not being applied, along with the next interest date.

Is there any relief for borrowers who have availed cash credit or overdraft facility and are facing stress due to pandemic?

Yes, for such borrowers, the RBI regulatory package envisages that the banks should recalculate the ‘drawing power’ by reducing the margins and/or by reassessing the working capital cycle. This relief shall be available in respect of all such changes effected up to May 31, 2020 and shall be contingent on the bank satisfying themselves that the same is necessitated on account of the economic fallout from COVID-19.

Has J&K Bank implemented the package?

The bank has already activated its business units to immediately grant the relief as per the RBI guidelines. On March 30, the bank has centrally suspended all Standing Instructions (SIMs) where the contra credit is a loan account upto May 31, 2020. However, BUs can reactivate the SIMs on specific request of the borrower(s).

Branches have been asked to rephrase the accounts by granting a moratorium of 03 months on payment of instalment due for the period March 01, 2020 to May 31, 2020. The residual tenor of such term loans has been shifted by three months & the EMIs shall also be recalculated accordingly.

In case of Working Capital facilities sanctioned in form of (CC/SOD), the recovery of interest applied during the period from March 01, 2020 to May 31, 2020 has been deferred and the accumulated interest shall be recovered immediately after the completion of the deferred period. The deferment of interest on working capital credit facilities is also applicable to exporters (in case of pre-shipment credit or PCL only).

However, in case any borrower is not desirous of availing the above facilities the branches can reactivate the SIMs to recover the EMIs as usual in such cases.

The borrowers have to note that the facilities are not to be treated as concession and there would be no change in terms and conditions of the loan agreements. Precisely, the package has been fully implemented by the bank.

Should borrowers necessarily avail the benefits?

Any businesses or individual facing a disruption in cash flows or loss of income should take the benefits under this package. Notably, the interest on the loans continues to accrue on the loan account and results in higher cost. If the cash flows are appropriate and there is no loss of income, such borrowers should continue to repay their EMIs.