The guidelines issued by RBI will always be all comprehensive and they will be unambiguous in their contents. But, Good Homer sometimes nods! And RBI is no exception. The recent circular issued by RBI in the context of the coronavirus crisis (Covid-19 Regulatory Package dated March 27) is an example where it has departed from its distinct style.
One finds many palpable gaps in the circular which need to be addressed at the earliest.
The circular permits grant of moratorium of three months on payment of instalments from March to May for all loans outstanding as on March 1, 2020. In other words, the borrowers for whom loans were sanctioned and disbursed after March 1 need to pay the EMIs from April onwards if no holiday period was provided in their sanction-terms.
Obviously this is unfair and the circular must include loans up to the date of the circular. As for the subsequent sanctions by banks, they may provide a holiday period as may be required of.
Excepting the loans to the salaried class which will be usually serviced by way of “auto-debit” from the respective savings accounts of the borrowers with their banks, loans to MSMEs and business people may run on arrears for a period ranging from one to 90 days. As per the circular, whatever be the amount of arrears till end-February, it has to be remitted as otherwise the account will slip into NPA in April or May warranting recovery proceedings.
If therefore, a real support is intended by the RBI, then moratorium must be given for a minimum of five months from January 2020. In this context, it is relevant to draw a reference to the Anant Raj Ltd vs YES Bank Ltd case, where Justice Sanjeev Sachdev of the Delhi High Court observed on the lines that given the provisions of the circular in question, the status of the account cannot be further downgraded because of the non-payment of the arrears related to the period prior to March 2020.
But the intention of the RBI does not seem to be so. Clarity in this regard may emerge once the final verdict of the case is handed out sometime in May.
In the case of working capital limits like overdrafts/cash credits moratorium on payment of interest is allowed till June. But the RBI wants the accumulated accrued interest of three months to be paid ‘immediately’ on the conclusion of the deferment period. This again will cause immense agony to the borrowers as their already strained cash flows will in no way help them to meet this huge demand all of a sudden. The deferment, therefore, becomes deadly because of this rider. They must be allowed to pay the accumulated interest in a phased manner, may be with compounded interest.
The circular has altogether lost sight of the import customers of banks. Banks would have opened letters of credit on behalf of their import customers to facilitate import of goods from abroad. Some of those LCs might have fallen due for payment in February and some may become due in April/ May. In many cases even the cargo would not have reached the Indian ports because of the stoppage of transports world over.
In such a situation it is unfair to expect the importers to fulfil their payment commitments and, therefore, deferment must be allowed for the import obligations also for three months. True, the RBI has an FAQ window where it provides clarifications for queries raised by bankers. But one expects the RBI to issue its guidelines with absolute clarity as in the past, without giving room for bankers to knock the ‘FAQ’ door.
The writer is Non Executive Chairman, City Union Bank