To lessen the double impact of lower #production on #economy and its participants, due to Covid-19 Pandemic, Mr. Shaktikanta Das, Governor, Reserve Bank of India (#RBI), announced various developmental and regulatory policy measures to improve the functioning of markets and market participants, vide Press Conference on 22.05.2020.

The said announcements were a result of suspension of Insolvency and Bankruptcy Code (#IBC), provisions as well as extension of the Lockdown. Likewise, sections 7, 9 and 10 of IBC, which enables creditors to initiate Corporate Insolvency Resolution Proceedings (#CIRP), are suspended for the period of one year to stop companies from being pushed into insolvency proceedings. The Government also excluded any debt arising out of circumstances created by the #Pandemic, from the definition of ‘default’ under the Insolvency and Bankruptcy Code (IBC). Official notification and/or resolution from the Corporate Ministry or relevant authorities are to be notified.

Consequently, the RBI in an effort to deal with defaulters during Covid-19 has taken steps to soften its restructuring and provisioning norms to deal with stressed assets. Therefore, in view of the extension of the Lockdown and continuing disruptions on account of Covid-19, RBI extended the moratorium period for interest payments on term loan instalments by another three months, i.e., from 01.06.2020 to 31.08.2020. The measures to support exports and imports, and efforts to further ease the financial stress, caused by COVID-19 disruptions have been taken care of by providing relief on debt servicing and improving access to working capital.  Further, the steps to ease financial constraints faced by State Governments are also considered. The below-mentioned table contains the details of various developmental and regulatory policy measures, recently announced by the RBI.

I. Measures to Improve the Functioning of Markets1- Refinancing Facility for Small Industries Development Bank of India (SIDBI)   The RBI had announced a special refinance facility of ₹15,000 Crore to SIDBI for on-lending/refinancing to ensure the accurate delivery of long-term funding requirements of Small industries.   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- Investments by Foreign Portfolio Investors (FPIs) under the Voluntary Retention Route (VRR)   The VRR facilitates long term and stable FPI investment in debt and offers operational flexibility in 2 terms of instrument choices and exemptions from certain regulatory requirements. 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 fulfill this requirement.  
II. Measures to Support Exports and Imports- 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 Credit   Exporters have been facing 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 31.07.2020.   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, 1 year to 15 Months, for disbursements made up to 31.07.2020.  

4- Liquidity Facility for Exim Bank of India  
In view of the COVID-19 pandemic, as the Export-Import (Exim) Bank of India, 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. This is 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
Cross-border trade has 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 6 Months to 12 Months from the date of shipment for such imports made on or before 31.07.2020.   The measure will provide greater flexibility to importers in managing their operating cycles in a COVID-19 environment.  
III. Measures to Ease Financial Stress6- Moratorium on Term Loan Instalments RBI permits lending institutions to extend the moratorium on term loan instalments by another three months, i.e., from 01.06.2020 to 31.08.2020. 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   In respect of working capital facilities, lending institutions are being permitted to allow a deferment of another three months, from 01.06.2020 to 31.08.2020, in addition to the three months allowed on 27.03.2020 on payment of interest in respect of all such facilities outstanding as on 01.03.2020.

8- Payment of Interest on Working Capital Facilities for the Deferment Period   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 31.08.2020) into a funded interest term loan which shall be repayable not later than the end of the current financial year (i.e., 31.03.2021).        

9- Asset Classification   The reliefs provided in Point Nos. 6, 7, and 8; 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.   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 01.03.2020 to 31.08.2020. Thereafter, the normal ageing norms shall apply.   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- Easing of Working Capital Financing   Lending institutions are permitted to recalculate the ‘drawing power’ by reducing the margins till the extended period, i.e., 31.08.2020.   They are also permitted to reassess the working capital cycle of a borrowing entity up to an extended period till 31.03.2021.  

11- Extension of Resolution Timeline   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 01.03. 2020 to 31.08.2020 from the calculation of 30-day Review Period or 180-day Resolution Period, if the Review/Resolution Period had not expired as on 01.03.2020.    

12- Limit on Group Exposures under the Large Exposures Framework   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 counter parties 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 Management13- Consolidated Sinking Fund (CSF) of State Governments – Relaxation of Guidelines   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. This change in withdrawal norms will come into force with immediate effect and will remain valid till 31.03.2021.  

Lakshmi Vishwakarma


The Indian Lawyer & Allied Services


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