On Friday (May 22, 2020), in its statement on developmental and regulatory policy measures, RBI announced several measures to improve the functioning of markets and market participants; measures to support exports and imports; efforts to further ease financial stress caused by COVID-19 disruptions by providing relief on debt servicing and improving access to working capital; and steps to ease financial constraints faced by state governments.
Roll-over of special refinance facility to SIDBI: RBI had offered a special refinance facility of ₹15,000 crore to SIDBI for on-lending/refinancing at policy repo rate at the time of availing the facility for a period of 90 days. Now it has been decided to roll over the facility at the end of the 90th day for another period of 90 days.
Investments by Foreign Portfolio Investors (FPIs) under the Voluntary Retention Route (VRR): Under Voluntary Retention Route (VRR) scheme (2019), the Foreign Portfolio Investors (FPIs) are required to invest at least 75 per cent of the limits allotted to them within three months. As per the latest announcement, an additional three months will be allowed to FPIs to fulfill this requirement. Detailed guidelines are being issued separately.
Time period for realization of Export Credit: In respect of exports made up to or on July 31, 2020, the realization period and repatriation of export proceeds to India has been increased from existing nine months to 15 months from the date of export. Further, the maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks increased from the existing one year to 15 months, for disbursements made up to July 31, 2020.
The time period for import payment: At present, remittances for normal imports (excluding import of gold/diamonds and precious stones/jewellery) into India are required to be completed within a period of six months from the date of shipment by the overseas supplier, except in cases where amounts are withheld towards the guarantee of performance. Now the time period for payment for imports is extended to twelve months from the date of shipment for such imports made on or before July 31, 2020.
Line of Credit to EXIM bank: With a view to promoting the country’s international trade and relax the liquidity problem due to global volatile foreign exchange market, RBI would extend a line of credit of Rs.15000 crore to the EXIM Bank for a period of 90 days from the date of availing with rollover up to a maximum period of one year so as to enable it to avail a US dollar swap facility to meet its foreign exchange requirements.
Extension of moratorium period: All lending institutions (including, regional rural banks, small finance banks and local area banks) are asked to extend the moratorium by another three months, in respect of all term loans outstanding as on March 1, 2020, taking the total period of applicability of the measures to six months (i.e. from March 1, 2020 to August 31, 2020). Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by another three months.
FITL for Payment of Interest on Working Capital Facilities: Lending institutions are permitted to convert the accumulated interest on working capital facilities over the deferment period (up to August 31, 2020) into a funded interest term loan (FITL) which shall be repayable before the end of the current financial year (i.e., March 31, 2021).
Asset Classification of loans under moratorium/deferment: The moratorium/deferment of loan repayment allowed to tide over COVID-19 disruptions will not be treated as changes in terms and conditions of loan agreements and therefore will not result in asset classification downgrade. There would be an asset classification standstill for all such accounts during the moratorium/deferment period from March 1, 2020 to August 31, 2020. Thereafter, normal aging norms shall apply. CICs shall ensure that action taken by lending institutions in this regard does not adversely impact the credit history of the borrowers.
NBFCs, which are required to comply with Indian Accounting Standards (IndAS), may follow the guidelines duly approved by their Boards and advisories of the Institute of Chartered Accountants of India (ICAI) in recognition of impairments. Thus, NBFCs have flexibility under the prescribed accounting standards to consider such relief to their borrowers.
Permission to recalculate the drawing Power or reassess the working capital cycle:: Wherever necessary, lending institutions may also recalculate the ‘drawing power’ of borrower’s cash credit/overdraft account by reducing the margins till the extended period, i.e., August 31, 2020 and restore the margins to the original levels by March 31, 2021. Lenders may also reassess the working capital cycle of a borrowing entity up to an extended period till March 31, 2021. This will provide necessary leeway to the lenders to make an informed assessment about the impact of the pandemic on the entity concerned. The changes made in credit terms on above cases will not be treated as concessions granted due to financial difficulty of the borrower, under Paragraph 2 of the Annex to the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated June 7, 2019 (‘Prudential Framework’), and consequently, will not result in asset classification downgrade.
Extension of Resolution Timeline: Since lending institutions under Prudential framework, 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. Given the continuing challenges to resolution of stressed assets, lending institutions are permitted to exclude the entire moratorium/deferment period from March 1, 2020 to August 31, 2020 from the calculation of 30-day Review Period or 180-day Resolution Period, if the Review/Resolution Period had not expired as on March 1, 2020.
Increase in Exposure to a Group of Connected Counterparties: With a view to facilitating a greater flow of resources to corporates, it is permitted as a one-time measure, to increase a bank’s exposure to a group of connected counterparties from 25% to 30% of the eligible capital base of the bank. The increased limit will be applicable up to June 30, 2021.
Consolidated Sinking Fund (CSF) of State Governments: RBI has reviewed and relaxed rules governing the withdrawal from the Consolidated Sinking Fund (CSF) scheme. The fund is being maintained by the state governments as a buffer for their liabilities with RBI. The relaxed rules will release an additional amount of Rs.13000 Crore to the States. However the State governments have to ensure that depletion of the Fund balance is done prudently. Together with the normally permissible withdrawal, this measure will enable the states to meet about 45 per cent of their redemptions due in 2020-21 through withdrawal from CSF. This change in withdrawal norms will come into force with immediate effect and will remain valid until March 31, 2021.