FAQs on rescheduling of Term Loans and Working Capital payments

On March 27, 2020 (Friday), the Monetary Policy Committee (MPC) of RBI announced certain regulatory measures to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses. With regard to rescheduling of Term Loans, Working Capital payments, and NPA classification certain common questions tend to recur in our readers’ minds. The FAQs compiled below are with appropriate answers to the queries in an easy to understand language.

Q: When will this package come into effect?

A: The package of a moratorium on the term loan and working capital payments is effective from March 1, 2020. The deferment covers the payments due for the months of March, April, and May 2020.

Q: Which type of borrowers is eligible for rescheduling of Term Loans and Working Capital payments under regulatory measures announced by RBI?

A: All term loans which have a fixed tenure (including agricultural term loans, retail and crop loans) and working capital facilities sanctioned in the form of CC/OD to borrowers facing stress on account of the economic fallout of the pandemic.

Q: Whether rescheduling of term loan payments will be allowed by a co-operative bank as per the RBI announcement?

A: All lending institutions viz. commercial banks, Regional Rural Banks, Small Finance Banks, Local Area banks, co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies) are permitted to grant a moratorium of three months on payment of all installments falling due between March 1, 2020, and May 31, 2020.

Q: Whether the customer has to request for rescheduling of payment or is it automatic?

A: The borrower has to request his bank to grant a moratorium of three months on payment. The borrower has to provide a satisfactory reason to the bank that the inability of payment is on account of the economic fallout from COVID 19.

Q: Whether rules are uniform for all the institutions?

A: Individual lending institutions are required to frame Board-approved policies for providing the above-mentioned reliefs to all eligible borrowers, inter alia, including the objective criteria for considering reliefs.

Q: March month installment is already deducted from my SB account and credited to the loan account by the bank. Is there any provision to refund the installment already deducted?

A: Normally, installments paid to a loan account cannot be reversed. You can stop the future deductions from your SB account i.e. for the months of April and May 2020 with a request to the bank giving a valid reason.

Q: When will the borrower pay the installments due during the moratorium period?

A: The repayment schedule for such loans as also the residual tenor will be shifted across the board by three months after the moratorium period.

Q: Should I pay if I have the money?

A: This is not a waiver, but a deferment. Interest will accrue, so if you have the money and not facing financial difficulties, it’s best for you to pay.

Q: Whether the interest has to be serviced during the moratorium period?

A:  Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.

Q: Is it means the moratorium cover both principal and interest?

A: Yes. It does. As per Board approved policies framed by your bank you can forego payment of your entire EMI, including payment of principal and interest.

Q: My loan installment is recovered through the ECS mandate given by me to another bank. Where I have to submit a request letter for not deducting installment during the moratorium period?

A:  Installment amount is claimed by the lender bank from another bank under the ECS system. The borrower has to submit the moratorium request to the bank with whom he has borrowed.

Q: Whether the moratorium on term loans and the deferring of interest payments on working capital will result in asset classification downgrade?

A:  No. It doesn’t. The moratorium on term loans and the deferring of interest payments on working capital will not result in asset classification downgrade.

Q: Whether the delay in payments of EMIs affects the borrower’s credit history?

A: Deferment of payments during moratorium will not be treated as default. Therefore, nonpayment of installments during the moratorium period will not be reported to CIBIL or any other credit information companies (CICs). Hence, there will be no adverse impact on the credit history of the beneficiaries.

Q: I am working in a public sector undertaking. I have taken a loan from a bank for the purchase of a car. Am I eligible for a moratorium under the scheme?

A: Yes. As per RBI announcement, retail loans which include home loans, vehicle loans, consumer loans, education loans, etc. are eligible for a moratorium. However, you have to show that your income has been impacted by the coronavirus disruption and take prior approval from your bank for such relief.

Q: I am a credit cardholder, am I eligible to get 3 months moratorium for clearing credit card dues?

A: Credit cards are not considered as term loans, they are not eligible for a moratorium.

Q: What type of relief available to borrowers enjoying working capital facilities?

A: In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions are being permitted to allow a deferment of three months on payment of interest in respect of all such facilities outstanding as on March 1, 2020. The accumulated interest for the period will be paid after the expiry of the deferment period.

Q: If the accumulated interest for the period will be paid after the expiry of the deferment period, how the drawing power of CC a/c will arrive?

A: In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions are allowed to recalculate drawing power by reducing margins and/or by reassessing the working capital cycle for the borrowers. Q: Whether the Moratorium/deferment of interest payment for three months deemed as a change in terms and conditions of loan agreements?

A: No it doesn’t. ‘Moratorium/deferment of payments’ for three months will not be treated as concession or change in terms and conditions of loan agreements due to financial difficulty of the borrower as per RBI’s ‘Prudential Framework for Resolution of Stressed Assets Directions, 2019’ dated June 7, 2019 (“Prudential Framework”). Such changes will not result in asset classification downgrade.

Q: The account is already in the SMA 2 category. What will be the NPA status of such an account?

A: The asset classification of term loans which are granted relief shall be determined on the basis of revised due dates and the revised repayment schedule. Similarly, working capital facilities where relief is provided, the SMA and the out of order status shall be evaluated considering the application of accumulated interest immediately after the completion of the permitted deferment period and as per the revised terms. Therefore, such changes due to the relief provided will not result in asset classification downgrade of either SMA 2 or any other category of accounts.