RBI expected to extend the moratorium on repayment of term loans, says SBI report

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On Sunday, the National Disaster Management Authority (NDMA) announced the extension of Nationwide lockdown until May 31. In such a situation, it is more likely for RBI to extend the moratorium on repayment of loans for three more months.

Earlier in March, RBI had approved to grant a moratorium term for three months for repayment of all term loans due between March 1, 2020, and March 31, 2020, which came as a big relief to borrowers across the nation. But with the extension of the lockdown, the concerns relating to the payment of dues have aroused again.

The waiting period before the borrower starts making their payments is expected to continue, owing to the current economic crisis the country is facing. According to SBI’s research report- Ecowrap, they expect RBI to extend the term period for three months which will indicate that companies need not pay the dues until August 31, 2020.

The report also indicates that in such a case, there will be a minimal possibility that the companies then will be able to service their interest liabilities in September. Thus, in case of failure in payment, it would make the loans termed as non-performing loans under RBI customs.

“The RBI needs to give operational flexibility to banks for a comprehensive restructuring of the existing loans and also a reclassification of the 90-day norm,” SBI report said.

The June 7 circular gives very little flexibility to banks at the moment. There needs to be a clarification on whether the enhanced working capital loans will be considered as COVID debt, said the report.

Prime Minister Narendra Modi announced the initial lockdown for 21 days, and later was extended till May 3 and then May 17. The fourth phase of the lockdown sees a subsequent amount of relief in the movement for various cities, except cities that come under heavily affected zones. The current lockdown is until May 31, but the steps that will be taken further are yet to be determined.

Finance Minister Nirmala Sitharaman shared the blueprint of the special relief package, divided into five tranches, which focused on uplifting various economic sectors to boost the economy. SBI’s Ecowrap has also mentioned the details of the package in detail.

SBI- Ecowrap report: https://sbi.co.in/documents/13958/3312806/Ecowrap_20200518.pdf/32f07d05-b0bf-c232-7d44-68ceb7309fbf?t=1589783303647

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