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Impact Of Lockdown 4.0, RBI Extends Moratorium Of Repayment Of Loans To Three More Months

According to an SBI research report, the Reserve Bank of India (RBI) is likely to extend the moratorium on repayment of loans for three more months. This move apparently comes in the wake of the government extending the country wide national lockdown till May 31.

The lockdown was first announced by Prime Minister Narendra Modi on March 24 for 21 days till April 14 in a bid to combat the COVID-19 pandemic. Then it was further extended till May 3 . Then it saw two week extension till May 17. Lockdown 4.0 came into force form May 18 till May 31 with a promises to be different with relaxations

In March, RBI, in a earlier news agency report,  had allowed a three-month moratorium on payment of all term loans due between March 1, 2020 and May 31, 2020.

“With the lockdown now extended up to May 31, we expect RBI to extend the moratorium by three months more,” SBI”s research report- Ecowrap said.

The report said the moratorium for three more months will imply that companies need not pay till August 31, 2020, and this means that there is almost minimal possibility of companies being able to service their interest liabilities then in September.

Failing to repay the interest liabilities will mean the account might be classified as non-performing loans as per the RBI norms.

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

The RBI”s June 7 circular is stringent and gives little flexibility to banks.

“The revised restructuring norms should give banks to restructure like say converting interest liabilities up to March 2021 into term loans, repayable in 3-5 years for working capital and at the end of the tenor in case of term loans,” the report said.

RBI also needs to also clarify whether working capital expansions classify as COVID-19 debt, it said.

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