Addressing the burden brought upon by the 21-day Coronavirus lockdown. RBI has put forth the COVID-19 regulatory package for the affected wide range of the population. Accordingly, this aims to eliminate the difficulties of viable businesses.
RBI COVID- 19 Regulatory Package for Coronavirus Lockdown
The package would provide the following benefits:
1. Payment Rescheduling
A. Term loans
All banks are advised to provide a three-month moratorium for the installment payment of term loans. Regarding the installments due between March and May. Further, there is an extension for repayment for the loans. Also, the repayment will be after the three-month extension, which is after May. However, the interest will still be calculated during the moratorium period of the outstanding due.
B. Working capital facilities
The working capital issued in the form of cash credit or overdraft can allow the interest recovery during the three months. Further, the accumulated interest will be subjected to recovery post-May 31st, 2020.
2. Feasible financing for working capital
Beneficiaries under pressure will benefit from this regulatory term. In this case, institutions will reassess the working repayment cycle and alter it accordingly, Further, reduce the margins and re-estimate the drawing power. Additionally, this will stand true until the three-month relaxation period. However, the alteration may remain the same after the buffer phase, until the institution orders otherwise.
3. Defined stipulation
The said terms that are extension, Deferment and re-estimation are for borrowers under pressure from the pandemic. However, the same benefits and concessions will not be given to borrowers already under financial pressure regardless of coronavirus.
4. Term Loan and working capital Asset Classification
The classification will be depending on the alternations (that is the change in the due dates and payment schedule, the interest accumulation, and the new terms).
5. Monitoring the action
The CICs will monitor the actions undertaken by the lending institutes. This is to make sure that the supervisor reporting to CICs acts according to the terms of revision.
6. Rules and regulation
- The lending institutes will implement policies that are board approved. Also, make sure that the reliefs are available to all eligible borrowers. Further, the policy must abide by the objective criteria.
- When the debt amount exceeds over Rs 5 crore, the bank drafts an MIS. Accordingly, this will include the beneficiaries wise and lending institute-wise details concerning the amount and the nature of the relief.
- It is necessary to effectuate the notification immediately, and also important to abide the terms of the circular.
Statement on Development and Regulatory Policies
The COVID- 19 regulatory package tackles the COVID-19 financial crisis. Thereby, focuses on the following:
- Liquidity enhancement to improve the working of financial markets and institutions.
- Also, enforcing the financial transfers, to aid easy flow of credit to the affected population.
- Additionally, rescheduling the repayment cycle and ensure working capital attainability to distress the situation.
- Subsequently, improve the functioning of the financial market for better results concerning the pandemic outbreak.
Activities under the Statement on Development and Regulatory Policies
1. Management of financial crunch:
- Targeted Long-term Repos Operations (TLTROs).
- Cash reserve ration under Reverse repo operation.
- Reduce the requirement of CCR balance per day from 90% to 80%.
- Marginal Standing Facility (Allow banks to borrow by reducing 2% into the Statutory Liquidity Ratio (SLR).
- Expansion of Monetary policy rate.
Further, the said relief measure will inject over Rs 3.74 lakh crore into the administration system.
2. Monitory and regulatory measures
- Momentary suspension on Term loans
- Postponement of Interest on Working capital
- Feasible financing of working capital
- Rescheduling of Net Stable Funding Ratio (NSFR)
- Adjournment of the final unit of Capital Conservation Buffer (CCB)
3. Concentrate on financial markets
- Reduce arbitrage on in and offshore market
- Allow banks to trade with Offshore NDF market
Banks
- All commercial banks- small financing banks, local area banks and also regional rural banks.
- Co-operative banks (state, district, and central).
- Financial institutes.
- Non-Banking Financial Companies.
RBI regulatory policy- It is Curated to Provide Relief?
The RBI’s Regulatory Relief package is momentary relief. Accordingly, this has been devised for a short period that is three months. However, no stipulations are given if the virus outbreak lasts for more than just a few weeks. Besides, these measures can be the initial step to revive the economy, yet, they are a response to crisis rather than a proactive measure. Nevertheless, the package signifies the central inclination to aid and overcome the hurdle. Even though, these relief benefiting borrowers are positive dealings. It is equally important to be ready if and when the epidemic evolves.
Is the RBI Regulatory Relief Package Enough?
RBI has cut the interest rate to the lowest ever observed. Further, encouraging the transactions of money by disbursement to the needy. Additionally, regulatory policies are well formulated to handle the crisis. However, as mentioned earlier they are adequate for now. But it is difficult to work with just these relief measures in the near future. Furthermore, these packages solely concentrate on relief in terms of debt servicing units. However, COVID-19 has an effect on other sectors as well, that require a different set of financial assistance.
In conclusion, the regulatory policy will help sustain by providing financial relief for a short period. Meanwhile, the government must orchestrate a series of measures dealing with population from all walks of life.