The Moratorium Option by The Banks In Times Of Covid-19

1. The whole world is engulfed in the Corona Virus pandemic. Innumerable businesses and jobs are at stake at the time of this unprecedented global crisis. So many laborers are migrating apprehending of loss of jobs. It, therefore, becomes the duty of the banks to come forward and safeguard the businesses and their stakeholders.
2. As the businesses are shut amid lockdown into various parts of the world and the global business market has come to a standstill, it is for the banks to grant relief as an interim measure viz-a-viz the working capital requirements, repayment of EMIs, payment of interest.

Statement by the International Monetary Fund (IMF)

1. The IMF took an early view of pandemic and confirmed that Covid-19 has done global damage to an extent that it has pushed global economy into a recession.
2. The economic consequences of the pandemic are already impacting the United States with unprecedented speed and severity. In the last two weeks in March almost 10 million people applied for unemployment benefits.
3. In order to overcome this pandemic, IMF in collaboration with various other partners is ensuring a rapid support to the countries through emergency financing, policy advice and technical assistance.

Measures Announced by the Reserve Bank of India (RBI)

There were various measures announced by the RBI in order to mitigate the burden of debt and ensuring the continuity of viable businesses and assistance to the states:

1. In respect of the long-term loans, lending institutions are permitted to grant a moratorium of three months on payment of all instalments falling due between March 1st, 2020 and March 31st, 2020. However, the interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.
2. In respect of the working capital facilities sanctioned in form of Cash Credit (CC)/ Over-Draft (OD), lending institutions are permitted to grant a moratorium of three months for recovering the interest applied of all such facilities in between the period of March 1st, 2020 and March 31st, 2020. However, accumulated accrued interest shall be recovered immediately after the completion of this period.
3. In respect of the working capital facilities availed to the borrowers facing stress on account of Covid-19, lending institutions are permitted considering various factors into account, to recalculate the drawing power of the borrowers and reduce the marginal requirement by reassessing their working capital cycle. This relief shall be available in respect of all such changes effected up to May 31, 2020.
4. The exporters are granted an extension of 6 months for the realization period of export proceeds which was required to be realized fully and repatriated to the country within a period of 9 months from the date of exports. The measure will enable the exporters to realise their receipts, especially from COVID-19 affected countries within the extended period and also provide greater flexibility to the exporters to negotiate future export contracts with buyers abroad.
5. Increasing the Way and Means Advances (WMA) limit for all States/UTs by 30 percent from the existing limit to enable the State Governments to tide over the situation arising from the outbreak of the COVID-19 pandemic.

Measures Implemented so far

1. The IMF has already made USD 50 billion available from its emergency financing facilities, and around 80 countries have already asked for help. 
2. The World Bank has also approved a USD 14 billion COVID-19 response package. Out of the first set of aid projects amounting to USD 1.9 billion for assistance of 25 countries, the largest chunk has gone to India with USD 1 billion.
3. The lending institutions have also started deferring the interest working capital loans, EMIs, cutting down the marginal requirements.

What more needs to be done?

1. Despite there being clear guidelines from the RBI with regard to EMI moratorium, the banks are not implementing the measures uniformly because of ambiguity and communication gap. Different banks are coming up with different set of criterions for the deferment of loan repayments. Therefore, RBI must come up with clarity and answer the FAQ’s at the earliest. 
2. The banks are disbursing financial assistance based on the set criterion of Special Mention Account (SMA) and Non-Performing Assets (NPA). Therefore, it is the moral obligation of the government to step forward at the time of unprecedented health crisis and take guarantee to some extent in order to help these businesses survive as loss of business would further lead to widespread unemployment.