KOLKATA: Indian economy has been reeling under the severe impact of the nationwide lockdown that was announced in March 25, to curb the spread of Coronavirus. The lockdown which was supposed to end in 21 days, in April 14, has since been extended twice. With this new extension in effect, the Reserve Bank of India is considering a proposal for extending the moratorium on repayment of bank loans, by 3 months. This decision is meant to support borrowers while keeping the post-crisis revival of economy, in mind. The proposed moratorium is set to prolong the 3-month moratorium, RBI had previously passed, for bank loans that were outstanding as of March 1st, by another three months.
According to Government sources, RBI is currently mulling over this proposal after repeated petitions and suggestions from various quarters of the banking sector, as a whole. Joint industry bodies like Indian Banks’ Association have been advocating the further extension of this lawful suspension, from April.
The Government has started lifting restriction in areas, unaffected by COVID-19. Ideally, this decision should enable the reflux of cash-flow but businesses across India are yet to catch up to the Government-mandated work-place safety precautions partly due to the absence of revenue. Consequentially, it has become well nigh impossible for most businesses and borrowers to repay their loans at the end of the present moratorium period, ending on May 31.
The existing moratorium had resulted in the suspension of automatic EMI deductions in bank accounts of Individuals with outstanding loans. This provided much-needed liquidity for relevant entities which became cash-strapped as a result of the pandemic. The loan EMI payments would have restarted once the moratorium time period of 3 months expired.
“So, extension of moratorium by another three months would be a practical approach from the regulator,” a senior public sector bank official stated.
In a statement describing the March-27 decision to allow moratoriums on repayments on outstanding bank loans, RBI had said, “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 instalments in respect of all term loans outstanding as on March 1, 2020.” Furthermore, RBI said this moratorium can shift the repayment schedule and all subsequent due dates, essentially the tenor, for the relevant loans by three months.
On Saturday, RBI Governor Shaktikanta Das held a meeting with public and private sector bank officials. The the issue of loan moratorium was thoroughly discussed and reviewed along with other urgent matters. Credit flows to different sectors of the economy, including liquidity to non-banking financial companies, microfinance institutions, housing finance companies, mutual funds, etc, and post lockdown credit flows including provision of working capital, with special focus on credit flows to MSMEs were also deliberated upon.
Earlier this week, the Supreme Court finally directed the RBI to ensure that its March 27 guidelines directing lending institutions to allow a three-month moratorium to all borrowers is implemented in letter and spirit.