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The RBI vide circular RBI/2019-20/186 on 27th March 2020 announced specific regulatory measures in order to alleviate the burden of debt servicing caused due to the disruptions caused by the Covid-19 pandemic and to ensure the continuation of a viable business.
As part of the regulatory package by RBI, the Reserve Bank of India has announced to grant a moratorium of three months on payments of all installments due between 1st March 2020 and 31st May 2020.
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All term loans, including the agricultural term loans, retail loans, crop loans, are eligible in all segments regardless of the segment and tenor of the term loan. All cash credit/overdraft are eligible for benefit under this package, and it is at the disposal of all such accounts which are standard assets as on 1st March 2020.
The essential elements of this package include the following:
Following are the benefits of this regulatory package by RBI:
The disadvantages of this package include:
There seems to be some uncertainty regarding the application of this regulatory package to the loan facilities availed by NBFCs and shadow banking institutions from scheduled commercial banks. It may be noted that the Indian Banks Association and the Reserve Bank of India released their FAQs on 1st April 2020[2], wherein it was stated that although the moratorium on term loans is available to all borrowers including the NBFCs, the working capital loans extended to the NBFCs will not be eligible.
Moreover, the State Bank of India, in its FAQs, stated that none of the NBFCs, MFIs, and other financial institutions is eligible for the moratorium, and they may be offered funding under the targeted long term repo operations in case of any cash flow issues.
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