Reserve Bank of India (RBI) announced a regulatory packageon March 27 to mitigate the burden of debt servicing brought about bydisruptions on account of COVID-19 pandemic and to ensure the continuity ofviable businesses. Greater Kashmir has continuously been receivingqueries of multiple natures seeking clarification about the regulatory packageannounced by the RBI and its implementation by the banks operating in Jammu& Kashmir. Here is the nitty gritty of the package in accordance withvarious questions asked by a cross section of readers:
Which loans are eligible under the package?
All term loans (including agricultural term loans, retailand crop loans) and cash credit/overdraft are eligible to avail the benefitunder the package. The facility is available to all such accounts, which arestandard assets as on 1st March 2020 and stands extended across the board toall the borrowers by extending repayment of term loan instalments (includinginterest) by three months.
What is operational procedure of moratorium of three months?
A three-month moratorium announced by the RBI on all termloans is a repayment holiday of equated monthly instalments (EMIs) outstandingas on March 1, 2020. The moratorium period is also applicable to the workingcapital facilities. In simpler terms, the banks won’t deduct EMIs for themonths of March, April & May 2020. The original repayment period for termloans will get extended by three months e.g. a loan repayable in 60 instalmentsmaturing 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 outstandingportion of the term loans during the moratorium period. The recovery ofInterest applied to cash credit/overdraft on March 31, April 30 and May 31, 2020is being ‘deferred’. However, the entire interest will be recovered along withthe interest being applied on June 30, 2020 and in cases, where monthlyinterest 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 packageenvisages that the banks should recalculate the ‘drawing power’ by reducing themargins and/or by reassessing the working capital cycle. This relief shall beavailable in respect of all such changes effected up to May 31, 2020 and shallbe contingent on the bank satisfying themselves that the same is necessitatedon account of the economic fallout from COVID-19.
Has J&K Bank implemented the package?
The bank has already activated its business units toimmediately grant the relief as per the RBI guidelines. On March 30, the bankhas centrally suspended all Standing Instructions (SIMs) where the contracredit is a loan account upto May 31, 2020. However, BUs can reactivate theSIMs on specific request of the borrower(s).
Branches have been asked to rephrase the accounts bygranting a moratorium of 03 months on payment of instalment due for the periodMarch 01, 2020 to May 31, 2020. The residual tenor of such term loans has beenshifted 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 berecovered immediately after the completion of the deferred period. Thedeferment of interest on working capital credit facilities is also applicableto exporters (in case of pre-shipment credit or PCL only).
However, in case any borrower is not desirous of availingthe above facilities the branches can reactivate the SIMs to recover the EMIsas usual in such cases.
The borrowers have to note that the facilities are not to betreated as concession and there would be no change in terms and conditions ofthe loan agreements. Precisely, the package has been fully implemented by thebank.
Should borrowers necessarily avail the benefits?
Any businesses or individual facing a disruption in cashflows 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 resultsin higher cost. If the cash flows are appropriate and there is no loss ofincome, such borrowers should continue to repay their EMIs.