The Reserve Bank of India (RBI), on Friday, announced additional measures, including giving relief on debt servicing for three more months and increasing a bank’s exposure to a group of connected counterparties, to further ease financial stress caused by Covid-19 disruptions.
In view of the extension of the lockdown, the RBI has permitted lending institutions to extend the moratorium on term loan instalments and deferment in respect of working capital (WC) facilities sanctioned in the form of cash credit/overdraft by another three months from June 1to August 31.
The abovementioned extension is in respect of all term loans and WC facilities outstanding as on March 1.
Lenders are permitted to convert the accumulated interest on WC facilities over the deferment period (up to August 31) into a funded interest term loan, which shall be repayable not later than the end of the current financial year ending March 31, 2021.
Asset classification downgrade
As the moratorium/deferment is being provided specifically to enable borrowers to tide over Covid-19 disruptions, the central bank said the same will not be treated as changes in terms and conditions of loan agreements due to financial difficulty of the borrowers and, consequently, will not result in asset classification downgrade.
Lending institutions are permitted to recalculate the ‘drawing power’ by reducing the margins till the extended period – August 31. In order to smoothen the impact for the borrowers, they have been permitted to restore the margins to the original levels by March 31, 2021.
Further, lenders are permitted to reassess the working capital cycle of a borrowing entity up to an extended period till March 31, 2021. The RBI reasoned that this will provide necessary leeway to the lenders to make an informed assessment about the impact of the pandemic on the entity concerned.
To facilitate flow of resources to corporates, the RBI, as a one-time measure, has allowed an increase in a bank’s exposure to a group of connected counterparties from 25 per cent to 30 per cent of the eligible capital base of the bank. The increased limit will be applicable up to June 30, 2021.
The upping of the exposure limit comes in the backdrop of many corporates finding it difficult to raise funds from the capital market, which is witnessing heightened uncertainty on account of the pandemic, and are predominantly dependent on funding from banks.
Export credit
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.
“Exporters have been facing genuine difficulties such as delay/ postponement of orders and delay in realisation of bills, which are adversely affecting their production and realisation cycles.
“It is in this context that the RBI permitted an increase in the period of realisation and repatriation of export proceeds to India from nine months to 15 months from the date of export in respect of exports made up to or on July 31,” the RBI said.
Payment for imports: Time extension
The central bank has extended the time period for completion of remittances against normal imports into India (except in cases where amounts are withheld towards guarantee of performance) from six months to twelve months from the date of shipment for such imports made on or before July 31.
According to the RBI, this measure will provide greater flexibility to importers in managing their operating cycles in a Covid-19 environment.
Extension of resolution timeline
Given the continuing challenges to resolution of stressed assets, lending institutions have been permitted to exclude the entire moratorium/deferment period from March 1to August 31from the calculation of 30-day review period or 180-day resolution period, if the review/resolution period had not expired as on March 1.
As per the extant prudential framework, lending institutions are required to hold an additional provision of 20 per cent in the case of large accounts under default if a resolution plan has not been implemented within 210 days from the date of such default.