"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 in stitutions) are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020," RBI governor Shaktikanta Das said while announcing a series of liquidity measures after the monetary policy committee (MPC) meeting.

 

Accordingly, the move is expected to alleviate concerns over the possible short term delinquency in retail, MSME or corporate loans.

 

Furthermore, the apex bank also announced deferment of interest payment on working capital loans by three months. This would cover all outstanding as on March 1, 2020.

 

"It's really important that steps are taken to mitigate the burden of debt servicing brought about by disruptions on account of the Covid-19 pandemic. These steps will go a long way to prevent the transmission of financial stress to the real economy and ensure the continuity of businesses and provide relief to borrowers in these extraordinary times," he said.

 

Deferment of interest payment and instalment of term loans has been one the demands of India Inc due to extreme conditions presented by the spread of the virus. It will allow companies to continue with their investment plan to tide over the current situation without bothering about loans turning Into NPAs.

 

For banks, which faced financial stress in the last few months, the move would not add up to their woes as the RBI has taken enough measures to infuse liquidity in the banking system.

 

The moratorium on loan repayment will cover all commercial banks, including regional rural banks, small finance banks, and local Indian banks, cooperative banks, All India financial institutions and NBFCs including housing finance companies and micro finance institutions.

 

Das said that while interest payment on working capital loans is being deferred the accumulated interest for the period will be paid after expiry of the period.

 

He said that measures would not result in asset classification downgrade. It is also expected that moratorium and deferment may not also result in rating downgrade by agencies.

 

In addition, RBI eased Working Capital Financing norms. "The moratorium on term loans, the deferring of interest payments on working capital and the easing of working capital financing will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (CICs) by the lending institutions," Das said.

 

"Hence, there will be no adverse impact on the credit history of the beneficiaries."