Last week, the Reserve Bank of India has announced a three-month moratorium on all term loans outstanding as on March 1, 2020, as well as on working capital facilities. Now, The Indian Banks Association has answered a list of Frequently Asked Questions about the technicalities of the moratorium.

QUESTION 1: When/what was the RBI announcement?ANSWER: Last week, the Reserve Bank of India announced a three-month moratorium onall term loans outstanding as on March 1, 2020, as well as on working capital facilities.

QUESTION 2: Why has RBI announced the relief package?ANSWER: Reserve Bank of India has announced certain regulatory measures to mitigate theburden of debt servicing brought about by disruptions on account of COVID-19 pandemicand to ensure the continuity of viable businesses. It was felt that there may be a temporarydisruption in the cash flows, and in some cases loss of income, for the businesses/ individualsand the present measures work to bring relief to those businesses / individuals.

QUESTION 3: Which are the facilities eligible for availing the benefits under the RBICOVID-19 regulatory package and whether the facility is extended across the board toall borrowers?ANSWER: All term loans (including agricultural term loans, retail, crop loans and loansunder Pool Purchases) and cash credit/overdraft are eligible to avail the benefits under thepackage. This is available to all such accounts, which are standard assets as on 1st March2020. Further, to avoid unnecessary paperwork the facility has been extended across theboard to all the borrowers by extending repayment of term loan installments (includes interest) by 90 days. The original repayment period for term loans will get extended by 90days e.g. a loan repayable in 60 installments maturing on 1 March 2025 will mature on 1 June 2025.

QUESTION 4: Is rescheduling of payments applicable for all kinds of term loans?ANSWER: It is applicable for all term loans in all the segments, irrespective of the segmentand the tenor of the term loans.

QUESTION 5: Is rescheduling of term loans only for principal amount or it alsoincludes interest?ANSWER: Rescheduling of principal can be done for a period of three months falling duebetween March 1, 2020 and May 31, 2020. For example, where the last installment of a termloan falls due for payment of on say 1st March 2020, it will become payable on 1 June2020.For EMI based term loans, it will be three EMIs falling due between 1 March 2020 andMay 31, 2020 and the tenor will be extended by three months and have to be repaid duringthe extended period, as per the example under (2) above.For other term loans, it will be all the installments and Interest falling due during the sameperiod, irrespective of the tenor of payment i.e. monthly, quarterly, half yearly, annually,bullet payment etc. For term loans, where the repayment has not commenced, the interestportion for three months alone needs to be reckoned.

QUESTION 6: What happens if the extended tenor of term loan goes beyond themaximum period stipulated for a product or as stipulated in the loan policy?ANSWER: This can be extended for all such term loans without the need for seekingdeviations or approvals.

QUESTION 7: What will be the treatment of interest on the working capital facilities?ANSWER: The recovery of Interest applied to cash credit/overdraft on 31 March, 30April and 31 May 2020 is being ‘deferred’. However, the entire interest must be recoveredalong with the interest being applied on 30 June 2020 and in cases, where monthly interestis not being applied, along with the next interest date.

QUESTION 8: What will be the impact of this relief by RBI on borrowers as far asreporting of default is concerned?ANSWER: Any delay in payment leads to default and gets reported to Credit Bureaus. Forbusiness loans of Rs. 5 Crores and above, the banks report the overdue position to RBI alsothrough CRILC. As a result of this relief package, the overdue payments post 1 March 2020will not be reported to Credit Bureaus/ CRILC for three months. No penal interest or chargeswill be payable to the banks. Similarly, SEBI has allowed that Credit Rating Agencies(CRAs) may not consider the delay as default by listed companies if the same is owing tolockdown conditions arising due to COVID-19.

QUESTION 9: That means businesses/ Individuals should necessarily take the benefit?ANSWER: You may take the benefits under this package if there is a disruption in your cashflows or there is loss of income. However, you must take into account that the interest on theloans, though not mandatorily payable immediately and gets postponed by 3 months,continues to accrue on your account and results in higher cost.To give you a perspective, suppose your loan outstanding is Rs 100,000 and you are charged12 percent rate of interest on your loans, then every month you are liable to pay Rs. 1,000 asinterest. In case you opt not to service the interest every month, you are liable to pay interestat 12 percent p.a. and accordingly you will pay Rs. 3,030.10 at the end of 3rd month.Similarly, in case the interest rate is 10 percent, you are required to pay Rs. 833 p.m. or Rs.2,521 after three months.

QUESTION 10: Should I get upset if any bank staff or its collection agent approach mefor repayment?ANSWER: You should not get upset and tell bank staff/ collection agent that you want toavail the benefit being extended under regulatory package.

QUESTION 11: What about my credit card dues?ANSWER: The relief is available for credit card payments also.In case of credit card dues, there is a requirement to pay minimum amount and if it is notpaid the same gets reported to Credit Bureaus. In view of the RBI circular, the overdues inthe credit card account do not get reported to the credit bureaus for a period of three months.However, interest will be charged by the credit card issuer on unpaid amount. You shouldcheck from your card provider to arrive at interest payable. Although no penal interest willbe charged during this period, but you must remember that the interest rate on credit carddues are normally much higher compared to normal bank credit and you should take adecision accordingly.

QUESTION 12: What about interchangeability being permitted from non-fund basedto fund based or FB to NFB for businesses?ANSWER: The interest applied on the fund based portion of interchangeability availedduring the said period of 1st March to 31 May 2020 will be eligible for moratorium. Inrespect of new sanctions accorded from 1st March and availed during the period, the interestapplied on the Fund based portion would be eligible.

QUESTION 13: In what other ways, businesses have been given relief?ANSWER: The businesses may request the bank to re-assess their working capitalrequirements on account of disruption of their cash flows or elongation of working capitalcycle. They may also request for reduction in margin on NFB facilities (LCs/ BGs etc) oralso relief in Security. Decision will be taken by the bank branches on case-to-case basisbased on the genuineness of the request.

QUESTION 14: Are NBFCs/MFIs/HFCs eligible under the “easing of working capital financing”?ANSWER: At present, they are not being considered under the scheme. However, RBI hasmade provision for sufficient liquidity support to these financial intermediaries underrecently introduced Targeted Longer-term Refinancing Operations i.e. TLTRO. Liquidityavailed under the scheme by Banks has to be deployed in investment grade corporate bonds,commercial paper, and non-convertible debentures over and above the outstanding level oftheir investments in these bonds as on March 27, 2020.Banks shall be required to acquire up to fifty per cent of their incremental holdings ofeligible instruments from primary market issuances and the remaining fifty per cent from thesecondary market, including from mutual funds and non-banking finance companies.Investments made by banks under this facility will be classified as held to maturity (HTM)even in excess of 25 per cent of total investment permitted to be included in the HTMportfolio. Exposures under this facility will also not be reckoned under the large exposureframework. Banks will be able to support NBFCs/ MFIs/ HFCs etc. under this window andwe do not foresee liquidity squeeze for these Financial Intermediaries.

QUESTION 14: Will all these measures of RBI be treated as “restructuring”? Whatabout the provisions applicable?ANSWER: The measures stipulated by RBI under the March 27, 2020 circular on COVID-19 Regulatory Package will not be treated as “restructuring” and hence will not result in assetclassification downgrade. Accordingly, the enhanced provisions for Restructured Accountswill not apply.

QUESTION 15: What about installments/EMIs being recovered throughSI/ECS/NACH? What will be the procedure for refund of the installment/EMIs, ifdemanded by the borrower?ANSWER: Please get in touch with your bank for the revised mandate