Heeding calls from lenders and industry alike, the Reserve Bank of India (RBI) on Friday allowed banks to provide a three-month moratorium on all term loans, working capital loans, farm loans and credit card dues.
The measure is expected to bring relief to borrowers across the spectrum who are likely to find it difficult to repay loans during the Covid-19 crisis. As large sections of the economy come to a standstill amid the ongoing lockdown, repayments have already started clogging up, with cash collections for non-banks being most-affected.
The benefits will be applicable to borrowers whose instalments are due between 1 March and 31 May.
According to the central bank, all commercial banks (including regional rural banks, small finance banks and local area banks), cooperative banks, all -India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) are permitted to allow this moratorium on all term loans outstanding as on 1 March. Owing to this forbearance, the repayment schedule and the tenor for these loans will be shifted by three months as well.
“I have never seen such a situation before because I have never witnessed the entire country under a lockdown for 21 days. Obviously when we are in such an unusual situation, the response also has to be unusual and unorthodox,” said Rajnish Kumar, chairman, State Bank of India (SBI). He added that as far as the bank’s profitability is concerned, it will remain unchanged because accrual of income or payment of interest on deposit does not stop.
According to him, the moratorium is applicable across the board and equated monthly instalments (EMIs) for all term loans will be shifted by three months.
“For working capital loans, banks have been given the flexibility to reassess the working capital limits and also to reduce the margins if required. These take care of the disruptions in cash flow,” he said.
RBI said in its statement that for working capital loans like cash credit and overdraft, lenders can allow a similar moratorium on interest payments for loans outstanding as on 1 March.
The accumulated interest, RBI said, will have to be paid after the expiry of the moratorium. Typically, these deferments would have led to a downgrade in asset quality since a three-month delinquency would lead to the asset being classified as non-performing and require extra funds to be set aside by banks as provisions. The central bank on Friday said that since these are meant to help borrowers tide over the economic fallout of Covid-19, the moratorium would not cause any change in asset classification.
Kumar said that the disruption in cash flow owing to Covid-19 is across the spectrum and almost 75% of the sectors are impacted. He estimated that since SBI gets repayment of about ₹2-2.5 trillion every year, the moratorium for three months would affect ₹50,000-60,000 crore of loans.
RBI also said that boards of these lenders will need to frame polices for providing the reliefs, including the objective criteria for easing working capital margins and place them in the public domain.
Moreover, since the moratorium will not lead to downgrading of asset quality, customers will not have to worry about their credit scores being impacted. According to Navin Chandani, chief executive at credit bureau CRIF High Mark, RBI also stated that credit history will not be impacted, as the deferment would not be categorised as defaults.
“We are optimistic that this will address the concerns of the borrowers and help maintain healthy credit scores and financial stability,” said Chandani.
In a conference call with reporters on 23 March, HDFC Bank’s managing director Aditya Puri had said that RBI should look to tide over the current crisis by taking steps, such as forbearance on asset classification across sectors, to help businesses impacted by Covid-19.
SBI
India’s largest lender State Bank of India (SBI) on Friday lowered its interest rates linked to external benchmarks by 75 basis points (bps) and cut its deposit rates by between 20-100 bps.
The bank said in a statement that its external benchmark linked lending rate (EBR) and repo-linked lending rate (RLLR) now stands at 7.05% and 6.65%, respectively, following the cut. These new rates will be effective 1 April, SBI said.
Meanwhile, the bank also reduced retail term deposit interest rates by between 20-50 bps across tenors and bulk term deposit rates by 50-100 bps. These are effective from 28 March.
