--- title: "COVID-19 Update – RBI Measures as of a date in view of the COVID-19 pandemic" date: 2020-05-05 author: "Archesh Tiwari" url: https://ksandk.com/banking/measures-deployed-by-the-rbi-to-tackle-covid/ --- # COVID-19 Update – RBI Measures as of a date in view of the COVID-19 pandemic Posted On - 5 May, 2020 • By - Archesh Tiwari ![Measures Deployed by the RBI to Tackle COVID-19 Pandemic](https://ksandk.com/wp-content/uploads/RBI-measures-Archesh-e1588584641860.jpg) ## Measures Deployed by the RBI to Tackle COVID-19 Pandemic In the wake of the ongoing Covid-19 pandemic, several measures have been recently taken by the [Reserve Bank of India](https://ksandk.com/practice-areas/banking/) **(“RBI”)** to ease the burden on retail as well as institutional players in the Indian market. The RBI had recently announced a Covid-19 – Regulatory Package[1] on March 27, 2020 (“Regulatory Package”), whereby lenders across India were inter alia permitted to grant a moratorium of three months upon payment of all installments that were due to fall between March 1st, 2020 and May 31st, 2020 **(“Moratorium Period”)**. Some of the measures under the Regulatory Package were as follows: - **Rescheduling of Payments – Term Loans and Working Capital Facilities** - The RBI further allowed the lending institutions to defer the recovery of any applicable interest in respect of working capital facilities sanctioned during the period from March 1, 2020, up to May 31st, 2020 in respect of working capital facilities sanctioned by way of cash credit/overdraft limits (“CC/OD”). The accumulated accrued interest is to be recovered immediately after the completion of this period. - **Easing of Working Capital Financing** - Further lending institutions have been asked to recalculate their respective ‘drawing power’ by reassessing the working capital cycle and/or by reducing their margins in respect of Cash Credit/ Overdraft (“CC/OD”) facilities to their borrowers facing stress on account of Covid-19. This relief is to be made available up to May 31, 2020. - **Classification as Special Mention Account (SMA) and Non-Performing Asset (NPA).** - To report to Credit Information Companies (CICs) and supervisory reporting by lending institutions, the rescheduling of payments, including interest, will not qualify as a default. The RBI has asked the CICs to ensure that the actions taken by such institutions following the above notifications do not have any adverse impact on the credit history of the beneficiaries. - Other Conditions - The banks are required to develop an MIS on the reliefs provided to their borrowers in all such cases where the exposure of a lending institution to a borrower is ₹ 5 crores or above as of March 1, 2020. These measures were followed post the statement **(“Governor’s Statement”)[**[2]**](#_ftn2)** made by the Governor on April 17, 2020, and a slew of other notifications whereby the RBI introduced measures in addition to the Regulatory Package which primarily aimed at: 1. maintaining adequate liquidity in the system and its constituents in the face of Covid-19-related dislocations, 2. facilitating and incentivizing bank credit flows, easing financial stress, and 3. enabling the normal functioning of markets. The following additional measures have been introduced by the RBI aimed at liquidity management under the Governor’s Statement: ### **Liquidity Management Measures under the Governor’s Statement** - **TLTRO**: RBI has decided to conduct targeted long-term repo operations **(“TLTRO 2.0”)** at the policy repo rate for tenors up to three years for an aggregate amount of INR 50,000 crore (approx. USD 6500 million), to begin with, in tranches of appropriate sizes. The funds availed under TLTRO 2.0 shall be deployed in investment-grade bonds, commercial paper, and non-convertible debentures of non-banking financial companies **(“NBFCs”)**, with at least 50 percent of the total funds availed shall be apportioned as below: 1. 10 percent in securities/instruments issued by Micro Finance Institutions (MFIs). 2. 15 percent in securities/instruments issued by NBFCs with asset size of INR 500 crores and below; 3. 25 percent in securities/instruments issued by NBFCs with assets size between INR 500 crores and INR 5000 crore. These investments made by banks would be classified as held to maturity **(“HTM”)** even over 25 percent of the total investment permitted to be included in the HTM portfolio. Exposures under this framework have also not been deemed under the large exposure framework (“LEF”). The time limit for the deployment of funds availed under this facility is 30 days from the date of operation. Banks would need to submit a declaration to this effect to the Financial Markets Operations Department and to the Department of Supervision[3] within one month of availing of these facilities. - **Refinancing Facilities for All India Financial Institutions (“AIFIs”)**: The RBI has decided to provide special refinance facilities for a total amount of INR 50,000 crore (approx. $6500 million) to the National Bank for Agriculture and Rural Development **(“NABARD”)**, Small Industrial Development Bank of India **(“SIDBI**”) and to National Housing Bank **(”NHB”)** to enable them to meet sectoral credit needs. The amount so allocated will comprise of: (i) ₹ 25,000 crores (approx. $ 3250 million) allocated to NABARD for refinancing regional rural banks (“RRBs”), cooperative banks, and MFIs; (ii) ₹15,000 crores to SIDBI (approx. $2000 million) for on-lending/refinancing; and (iii) ₹10,000 crores (approx. $ 1300 million) to NHB for supporting housing finance companies (“HFCs”). Advances under this facility are to be charged at RBI’s extant policy repo rate at the time of availing these facilities. - - Fixed-Rate Reverse Repo Rate: The RBI has further reduced the fixed-rate reverse repo rate under the liquidity adjustment facility (“LAF”) to 3.75 percent from 4.0 percent by 25 basis points. The policy repo rate remains unchanged at 4.40 percent, and the marginal standing facility rate and the bank rate remain unchanged at 4.65 percent; all the other terms and conditions of the LAF are to remain unchanged[4]. - Ways and Means Advances (“WMA”) for States: On April 1, 2020, the RBI announced an increase to the in WMA limit of the states by 30 percent. This WMA limit for states as well as for Union Territories has now been increased by 60 percent over and above the level as of March 31, 2020, and shall be available for utilization till September 30, 2020[[5]](#_ftn5). RBI had further announced the following regulatory measures in addition to the liquidity management measures under the Governor’s Statement. ### **Regulatory Measures under the Governor’s Statement** **(i)** **Asset Classification**: There would be an asset classification standstill during the Moratorium Period, i.e. the 90-day non-performing asset (NPA) norm shall not include the moratorium period for all such accounts for which lending institutions decide to grant moratorium or deferment. This applies to accounts which were standard as of March 1st, 2020. There is also a requirement for banks to now maintain sufficient buffers and remain adequately provisioned to meet future challenges. Banks would be required to maintain a higher provision of 10 percent spread over two quarters (March 2020 and June 2020) on all such accounts, under the standstill. **(ii) Extension of Resolution Timeline:** The RBI has further decided that the time period for implementing a  resolution plan would be extended by an additional 90 days from the earlier time frame of 210 days from the date of default in case of large accounts under default, Scheduled Commercial Banks, AIFIs, Non-Deposit taking Systemically Important NBFCs and Deposit-taking NBFCs under the RBI’s prudential framework of resolution of stressed assets dated June 7, 2019, (**“Prudential Framework”**). **(iii)** **Distribution of Dividend**: No further dividend pay-outs from profits pertaining to the financial year ending on March 31, 2020, by Scheduled commercial banks and cooperative banks. This restriction shall be subject to future review based on the financial position of banks for the quarter ending September 30, 2020. **(iv) Liquidity Coverage Ratio (“LCR”)**: The LCR requirement for Scheduled Commercial Banks has been brought down from 100 percent to 80 percent with immediate effect. The requirement will be gradually restored back in two phases: 90 percent by October 1, 2020, and 100 percent by April 1, 2021. **(v) NBFC Loans to Commercial Real Estate Projects**: In respect of loans to commercial real estate projects by NBFCs, the date for commencement for commercial operations (DCCO), can be extended by an additional one year without being treated the same as restructuring, if delayed for reasons beyond the control of promoters. Post the introduction of the Regulatory Package and the Governor’s Statement, the RBI has further introduced the following changes to its policies for the year 2020: ### **Other Measures** - **Interest Subvention (“IS”) and Prompt Repayment Incentive (“PRI”) for Short Term Crop Loans during the years 2018-19 and 2019-20**: Extended Period on account of Covid-19[[6]](#_ftn6) . - For short-term crop loans up to INR 3 lakh per farmer which have become due for repayment between March 01, 2020, and May 31, 2020, continued availability of 2% IS and 3% PRI has been provided to such farmers for an extended period of repayment of up to 31.05.2020 or the date of repayment, whichever is earlier. - **INR 50,000 crore Special Liquidity Facility for Mutual Funds (SLF-MF)[**[7]**](#_ftn7).** - While the minimum tenor of the repo with RBI will be for three months, banks have been given the option to fix the tenor of lending to/repo with MFs. --- - [[1]](#_ftnref1) RBI/2019-20/186 DOR.No.BP.BC.47/21.04.048/2019-20 - [[2]](#_ftnref2) https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=3853 - [[3]](#_ftnref3) Press Release: 2019-2020/2237 - [[4]](#_ftnref4) RBI/2019-2020/215 FMOD.MAOG.No.141/01.01.001/2019-20 - [[5]](#_ftnref5) Press Release: 2019-2020/2233 - [[6]](#_ftnref6) RBI/2019-20/224 FIDD.CO.FSD.BC.No.24/05.02.001/2019-20 - [[7]](#_ftnref7) Press Release: 2019-2020/2276 ### Contributed By – [Archesh Tiwari](https://www.linkedin.com/in/archeshtiwari/) Designation – Principal Associate #### [King Stubb & Kasiva](https://ksandk.com/), Advocates & Attorneys [Click Here to Get in Touch](https://ksandk.com/ksk/contact-us/) [New Delhi](https://g.page/king-stubb-and-kasiva) | [Mumbai](https://g.page/king-stubb-kasiva-mumbai) | [Bangalore](https://g.page/king-stubb-kasiva-bangalore) | [Chennai](https://g.page/king-stubb-kasiva-chennai) | [Hyderabad](https://g.page/king-stubb-kasiva-hyderabad) | Kochi Tel: [+91 11 41032969](tel:+911141032969) | Email: [info@ksandk.com](mailto:info@ksandk.com) --- ## Office Locations - [New Delhi](https://ksandk.com/locations/top-corporate-law-firm-in-delhi/) (HQ): +91-11-41318190 | info@ksandk.com - [Mumbai](https://ksandk.com/locations/top-corporate-law-firm-in-mumbai/): 3 offices (Nariman Point, Lower Parel, Andheri) | mumbai@ksandk.com - [Bangalore](https://ksandk.com/locations/top-corporate-law-firm-in-bangalore/): bangalore@ksandk.com - [Chennai](https://ksandk.com/locations/chennai/): chennai@ksandk.com - [Hyderabad](https://ksandk.com/locations/hyderabad/): hyderabad@ksandk.com - [Pune](https://ksandk.com/locations/pune/): pune@ksandk.com - [Kochi](https://ksandk.com/locations/kochi/): kochi@ksandk.com ## Contact - [Contact Page](https://ksandk.com/contact-us/) - General: info@ksandk.com | +91-11-41318190 - WhatsApp: +91-7428567444 - [Privacy Statement](https://ksandk.com/privacy-statement/) - [Terms of Use](https://ksandk.com/terms-of-use/)