Insights
RBI announces extension of moratorium, among other measures
May 22, 2020The RBI Governor has issued a statement announcing additional measures against the backdrop of the extension of the lockdown and a deteriorating outlook for economic activity, under four categories:
(A) Measures to ease financial stress – relief on debt servicing and improving access to working capital
In view of the extension of the lockdown and continuing disruptions the following measures announced by the RBI on 27 March and April 17 2020 are being extended by another three months from June 1, 2020 till August 31, 2020, taking the total period of applicability of the measures to six months i.e. from March 1, 2020 to August 31, 2020:
- granting of 3 months moratorium on term loan instalments;
- deferment of interest for 3 months on working capital facilities;
- easing of working capital financing requirements by reducing margins or reassessment of working capital cycle;
- exemption from being classified as ‘defaulter’ in supervisory reporting and reporting to credit information companies;
- extension of resolution timelines for stressed assets; and
- asset classification standstill by excluding the moratorium period of 3 months, etc. by lending institutions.
The lending institutions are being permitted to restore the margins for working capital to their original levels by March 31, 2021. Similarly, the measures pertaining to reassessment of working capital cycle are being extended up to March 31, 2021.
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Additionally, lending institutions are permitted to convert the accumulated interest on working capital facilities over the total deferment period of 6 months (i.e. March 1, 2020 up to August 31, 2020) into a funded interest term loan which shall be fully repaid during the course of the current financial year, ending March 31, 2021.
In view of the current difficulty in raising resources from capital markets, the group exposure limit of banks is being increased from 25 per cent to 30 per cent of eligible capital base, for enabling corporates to meet their funding requirements from banks. The increased limit will be applicable up to June 30, 2021.
(B) Measures to improve the functioning of markets and market participants
- Investment by FPIs in VRR : In view of difficulties expressed by FPIs and their custodians on account of COVID-19 related disruptions in adhering to the condition under the Voluntary Retention Route (VRR) that at least 75 per cent of allotted limits be invested within three months, it has been decided that an additional three months time will be allowed to FPIs to fulfil this requirement.
- Refinancing facility for SIDBI : The RBI had earlier announced a special refinance facility of ₹15,000 crore to Small Industries Development Bank of India (SIDBI) at RBI’s policy repo rate for a period of 90 days for on-lending/refinancing. In order to provide greater flexibility to SIDBI, it has been decided to roll over the facility at the end of the 90th day for another period of 90 days.
(C) Measures to support exports and imports
- Export Credit : In order to alleviate genuine difficulties being faced by exporters in their production and realisation cycles, it has been decided to increase the maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks from the existing one year to 15 months, for disbursements made up to July 31, 2020.
- Extension of Time for Payment for Imports : With a view to providing greater flexibility to importers in managing their operating cycles in a COVID-19 environment, it has been decided to extend the time period for completion of outward remittances against normal imports (i.e. excluding import of gold/diamonds and precious stones/jewellery) into India from six months to twelve months from the date of shipment for such imports made on or before July 31, 2020.
- Liquidity Facility for Exim Bank of India : In order to enable EXIM bank to meet its foreign currency resource requirements, it has been decided to extend a line of credit of ₹15,000 crore to the EXIM Bank for a period of 90 days (with rollover up to one year) so as to enable it to avail a US dollar swap facility.
(D) Steps to ease financial constraints faced by state governments :
Relaxation of guidelines for Consolidated Sinking Fund (CSF) of State Governments.
To refer to the RBI Governor’s statement dated 22 May 2020, click here.
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