RBI Cuts Interest rates, Extends Credit Periods for Stressed
Industries
[RBI Press Release dated May 22 2020]
Statement on Developmental and
Regulatory Policies
I. Measures to Improve the Functioning of Markets
1. Refinancing Facility of Rs.
15K crs for Small Industries Development Bank of
India (SIDBI)
2. More Time to Foreign Portfolio Investors
(FPIs) under the Voluntary Retention Route (VRR) to bring in Money
II. Measures to Support Exports and Imports
3. Export Realisation
Time Raised to 15 months from 12 months
4. Liquidity Facility of 15,000 crs for Exim Bank of India to borrow USD in Swap Deal
5. Extension of Time for Payment for Imports to
1 year from 6 months
III. Measures to Ease Financial Stress
6. Moratorium on Term Loan Instalments extended
to six months from three months
7. Deferment of Interest on Working Capital
Facilities to six months from three months
8. Working Capital Interest to be converted into
Loan
9. No Asset Classification Downgrade
10. Working Capital Financing – Margin reduction
measures extended to 31 Mar 2021
11. Default Account Resolution Timeline Extended
to 31 Aug
12. Limit on Group Exposures under the Large
Exposures Framework Raised to 30% from 25%
IV. Debt Management
13. Consolidated Sinking Fund (CSF) of State
Governments to honour Debt Redemptions
This
Statement sets out various developmental and regulatory policy measures to
improve the functioning of markets and market participants; measures to support
exports and imports; efforts to further ease financial stress caused by
COVID-19 disruptions by providing relief on debt servicing and improving access
to working capital; and steps to ease financial constraints faced by state
governments.
I.
Measures to Improve the Functioning of Markets
These
measures are intended to ease constraints on market participants and channel
liquidity to various sectors of the economy that are impacted by COVID-19
related dislocations.
1.
Refinancing Facility of Rs. 15K crs
for Small Industries Development Bank of India (SIDBI)
The
Small Industries Development Bank of India (SIDBI) plays an important role in
meeting the long-term funding requirements of small industries. In view of the
tightening of financial conditions in the wake of the COVID-19 pandemic, and
difficulties in raising resources from the market, the RBI had announced a
special refinance facility of ₹15,000 crore to SIDBI for
on-lending/refinancing. Advances under this facility were provided at the RBI’s
policy repo rate at the time of availment for a
period of 90 days. In order to provide greater flexibility to SIDBI in its
operations, it has been decided to roll over the facility at the end of the
90th day for another period of 90 days.
2. More
Time to Foreign Portfolio Investors (FPIs) under the Voluntary Retention Route
(VRR) to bring in Money
The
regulatory framework for FPI investment in debt has evolved over the years in
line with the policy objective of encouraging such flows within the prevailing
macro-prudential framework. The Voluntary Retention Route (VRR) introduced in
March 2019 facilitates long term and stable FPI investment in debt and offers
operational flexibility in terms of instrument choices and exemptions from
certain regulatory requirements. Since its introduction, the VRR scheme has
evinced strong investor participation, with investments exceeding 90 per cent
of the limits allotted under the scheme. In view of difficulties expressed by
FPIs and their custodians on account of COVID-19 related disruptions in
adhering to the condition that at least 75 per cent of allotted limits be
invested within three months, it has been decided that an additional three
months will be allowed to FPIs to fulfil this requirement. Detailed guidelines
are being issued separately.
II.
Measures to Support Exports and Imports
The
deepening of the contraction in global activity and trade, which has become
accentuated by the outbreak of COVID-19 and its rapid spread, has crippled
external demand. In turn, this has impacted India’s exports and imports both of
which have contracted sharply in recent months. In view of the importance of
exports in earning foreign exchange and in providing income and employment; and
of imports in bringing in essential requirements of raw materials,
intermediates, finished goods and technology, measures are being taken to
support the foreign trade sector.
3. Export
Realisation Time Raised to 15 months from 12 months
Exporters
have been facing genuine difficulties such as delay/ postponement of orders and
delay in realisation of bills, which are adversely
affecting their production and realisation cycles. It
is in this context that the RBI permitted an increase in the period of
realization and repatriation of export proceeds to India from nine months to 15
months from the date of export in respect of exports made up to or on July 31,
2020. It has now been decided to increase the maximum permissible period of
pre-shipment and post-shipment export credit sanctioned by banks from the existing
one year to 15 months, for disbursements made up to July 31, 2020.
4.
Liquidity Facility of 15,000 crs for Exim Bank of
India to borrow USD in Swap Deal
The
Export-Import Bank of India provides financial assistance to exporters and
importers with a view to promoting the country's international trade. In view
of the COVID-19 pandemic, however, global trade has contracted sharply and
global financial markets have turned highly volatile and risk averse,
especially to EMEs. As Exim Bank predominantly relies on foreign currency
resources raised from international financial markets for its operations, it is
facing challenges to raise funds in international debt capital markets.
Accordingly, it has been decided to extend a line of credit of ₹15,000
crore to the EXIM Bank for a period of 90 days from the date of availment with rollover up to a maximum period of one year
so as to enable it to avail a US dollar swap facility to meet its foreign
exchange requirements.
5.
Extension of Time for Payment for Imports to 1 year from 6 months
COVID-19
related disruptions to cross-border trade have imposed slowdown in
manufacturing/sale of finished products, and delay in realisation
of sale proceeds, both domestically and overseas. In turn, this has elongated
the operating cycle for business entities. In this situation, units find it
difficult to pay for their imports within the time stipulated under the Foreign
Exchange Management Act (FEMA). At present, remittances for normal imports
(excluding import of gold/diamonds and precious stones/jewellery)
into India are required to be completed within a period of six months from the
date of shipment by the overseas supplier, except in cases where amounts are
withheld towards guarantee of performance. It has been decided to extend the
time period for completion of remittances against normal imports into India
(except in cases where amounts are withheld towards guarantee of performance)
from six months to twelve months from the date of shipment for such imports
made on or before July 31, 2020. The measure will provide greater flexibility
to importers in managing their operating cycles in a COVID-19 environment.
III.
Measures to Ease Financial Stress
The
intensification of COVID-19 disruptions has imparted priority to relaxing
repayment pressures and improving access to working capital by mitigating the
burden of debt servicing, prevent the transmission of financial stress to the
real economy, and ensure the continuity of viable businesses and households.
6.
Moratorium on Term Loan Instalments extended to six months from three months
On
March 27, 2020, the RBI permitted 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) (referred to hereafter as “lending
institutions”) to allow a moratorium of three months on payment of instalments
in respect of all term loans outstanding as on March 1, 2020. In view of the
extension of the lockdown and continuing disruptions on account of COVID-19, it
has been decided to permit lending institutions to extend the moratorium on
term loan instalments by another three months, i.e., from June 1,
2020 to August 31, 2020. Accordingly, the repayment schedule and all subsequent
due dates, as also the tenor for such loans, may be shifted across the board by
another three months.
7.
Deferment of Interest on Working Capital Facilities to six months from three
months
In
respect of working capital facilities sanctioned in the form of cash
credit/overdraft, lending institutions are being permitted to allow a deferment
of another three months, from June1, 2020 to August 31, 2020, in addition to
the three months allowed on March 27, 2020 on payment of interest in respect of
all such facilities outstanding as on March 1, 2020.
8.
Working Capital Interest to be converted into Loan
In
order to ameliorate the difficulties faced by borrowers in repaying the
accumulated interest for the deferment period on working capital facilities in
one shot, lending institutions are permitted to convert the accumulated
interest on working capital facilities over the deferment period (up to August
31, 2020) into a funded interest term loan which shall be repayable not later
than the end of the current financial year (i.e., March 31, 2021).
Lending
institutions may, accordingly, put in place a Board approved policy to
implement the measures announced in para 6, 7, 8.
9. No Asset
Classification Downgrade
(i) As the moratorium/deferment is being provided
specifically to enable borrowers to tide over COVID-19 disruptions, the same
will not be treated as changes in terms and conditions of loan agreements due
to financial difficulty of the borrowers and, consequently, will not result in
asset classification downgrade.
(ii)
As earlier, the rescheduling of payments on account of the moratorium/deferment
will not qualify as a default for the purposes of supervisory reporting and
reporting to credit information companies (CICs) by the lending institutions.
CICs shall ensure that the actions taken by lending institutions in pursuance
of the announcements made today do not adversely impact the credit history of
the borrowers.
(iii)
In respect of all accounts for which lending institutions decide to grant
moratorium/deferment, and which were standard as on March 1, 2020, the 90-day
NPA norm shall also exclude the extended moratorium/deferment period.
Consequently, there would be an asset classification standstill for all such
accounts during the moratorium/deferment period from March 1, 2020 to August
31, 2020. Thereafter, the normal ageing norms shall apply.
(iv)
NBFCs, which are required to comply with Indian Accounting
Standards (IndAS), may follow the guidelines duly
approved by their Boards and advisories of the Institute of Chartered
Accountants of India (ICAI) in recognition of impairments. Thus, NBFCs have
flexibility under the prescribed accounting standards to consider such relief
to their borrowers.
10.
Working Capital Financing – Margin reduction measures extended to 31 Mar 2021
(i) In respect of working capital facilities sanctioned in
the form of cash credit/overdraft, lending institutions are permitted to
recalculate the ‘drawing power’ by reducing the margins till the extended
period, i.e., August 31, 2020. In order to smoothen the impact for
the borrowers, lending institutions are permitted to restore the margins to the
original levels by March 31, 2021.
(ii) Further, lending institutions are permitted to reassess
the working capital cycle of a borrowing entity up to an extended period till
March 31, 2021. This will provide necessary leeway to the lenders to make an
informed assessment about the impact of the pandemic on the entity concerned.
(iii)
Such changes in credit terms permitted to the borrowers to specifically tide
over COVID-19’s fallout will not be treated as concessions granted due to
financial difficulty of the borrower, under Paragraph 2 of the Annex to the
Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets)
Directions, 2019 dated June 7, 2019 (‘Prudential Framework’),
and consequently, will not result in asset classification downgrade.
11. Default
Account Resolution Timeline Extended to 31 Aug
Under
the Prudential Framework, lending institutions are required to hold an
additional provision of 20 per cent in the case of large accounts under default
if a resolution plan has not been implemented within 210 days from the date of
such default. Given the continuing challenges to resolution of stressed assets,
lending institutions are permitted to exclude the entire moratorium/deferment
period from March 1, 2020 to August 31, 2020 from the calculation of 30-day
Review Period or 180-day Resolution Period, if the Review/Resolution Period had
not expired as on March 1, 2020.
12. Limit
on Group Exposures under the Large Exposures Framework Raised to 30% from 25%
Under
the extant guidelines on the Large Exposures Framework, the exposure of a bank
to a group of connected counterparties shall not be higher than 25 percent of
the bank’s eligible capital base at all times. On account of the COVID-19
pandemic, debt markets and other capital market segments are witnessing
heightened uncertainty. As a result, many corporates are finding it difficult
to raise funds from the capital market and are predominantly dependent on
funding from banks. With a view to facilitating the flow of resources to
corporates, it has been decided, as a one-time measure, to increase a bank’s
exposure to a group of connected counterparties from 25 per cent to 30 per cent
of the eligible capital base of the bank. The increased limit will be
applicable up to June 30, 2021.
IV. Debt
Management
13.
Consolidated Sinking Fund (CSF) of State Governments to honour
Debt Redemptions
State
Governments maintain a Consolidated Sinking Fund (CSF) with the Reserve Bank as
a buffer for repayment of their liabilities. In the light of the Covid-19
pandemic and the consequent stress on State Government finances, the RBI has
reviewed the Scheme and has decided to relax the rules governing withdrawal
from the CSF, while at the same time ensuring that depletion of the Fund
balance is done prudently. This will enable States to meet a larger proportion
of their redemption of market borrowings falling due in the current financial
year from the CSF. These relaxations to states will release an additional
amount of about ₹13,300 crore. Together with the normally permissible
withdrawal, this measure will enable the states to meet about 45 per cent of
their redemptions due in 2020-21 through withdrawal from CSF. This change in
withdrawal norms will come into force with immediate effect and will remain
valid till March 31, 2021.
In
response to COVID-19, the requirement of fiscal resources has increased with
likely implications for market conditions going forward. The RBI shall remain
watchful and support the smooth completion of the borrowing programme
of the Centre and States in the least disruptive manner.