On March 27 RBI allowed financial institutions to offer a moratorium period of three months for loan payments due to COVID 19 affecting the income flow to people.
“All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all -India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (“lending institutions”) are being permitted to allow a moratorium of three months on payment of installments in respect of all term loans outstanding as on 1 March, 2020,” the RBI had said
The payments, repayment schedule, and subsequent dates will also be shifted across three months RBI said in its statement. Banks will deduct EMI payments from accounts only after this moratorium period ends. Supreme Court earlier this week has also asked RBI to make sure this moratorium to borrowers is honored by financial institutions. Banks were also exempted from NPA classification during this loan moratorium. The EMI payments will restart once the moratorium ends. Since the lockdown has been extended another 2 weeks from May 3, it is anticipated from RBI to extend this moratorium for another 3 months.
Extension of moratorium for further 3 months
Capital raising through issuing bonds by large private-sector lenders and Government for Public sector banks to maintain their capital adequacy ratio is already hinted. Hence the extension of the moratorium and NPA classification will also help the financial institutions from declaring large amounts of NPA’s. This moratorium and exclusion from the declaration of NPA’S will further reduce provisions and thereby help lenders to maintain their capital adequacy.
During the meeting held on Saturday RBI governor, Shaktikanda Das, with public and private sector banks discussed the issue of EMI moratorium. Apart from which credit flow into various sectors, Liquidity for financial institutions such as NBFC’s & mutual funds, working capital assistance, and special focus credit flow for MSME were also discussed.
To read more about current issues click here.