Addendum to the Guidance Note on Audit of Banks, 2020
Addendum to the Guidance Note on Audit of Banks, 2020 Edition with reference to RBI circular no.: RBI/2019-20/186 DOR.No.BP.BC.47/21.04.048/2019-20 dated March 27, 2020, on COVID 19 – Regulatory Package
The RBI issued a circular dated March 27, 2020, granting relief for borrowers as Covid-19 Regulatory package. The relief granted to borrowers vis-à-vis IRAC norms is as follows:
Rescheduling of Payments – Term Loans and Working Capital Facilities
1.1. Term Loans
In respect of all term loans (including agricultural term loans, retail and crop loans), 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) (‚lending institutions‛) are permitted to grant a moratorium of three months on payment of all installments falling due between March 1, 2020, and May 31, 2020. The repayment schedule for such loans as also the residual tenor will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.
The banks have been permitted to grant a moratorium period of three months on payment of all installments to all types of term loans which are falling due between March 01, 2020, and May 31, 2020, and accordingly the residual tenor of the account would be extended to the extent of such moratorium period granted.
The footnote to the circular specifies that Instalments will include the following payments falling due from March 1, 2020, to May 31, 2020: (i) principal and/or interest components; (ii) bullet repayments; (iii) Equated Monthly installments; (iv) credit card dues.
However, the circular is silent as regards the absorbing of the interest which would be payable by the borrower during the moratorium period of three months as to whether the same would result in incremental EMIs for the residual period or the residual period gets extended for the requisite period beyond the expected extension of three months. It may be presumed that the banks would be permitted to follow either of the two options. They would need to mention the option that will be followed in the Board approved policy in this regard. Further, as regards the applicability of IRAC norms, the relief in the form of the moratorium period does not have any impact.
1.2. Working Capital Facilities
In respect of working capital facilities sanctioned in the form of cash credit/overdraft (‚CC/OD‛), lending institutions are permitted to defer the recovery of interest applied in respect of all such facilities during the period from March 1, 2020, up to May 31, 2020 (‚deferment‛). The accumulated accrued interest shall be recovered immediately after the completion of this period.
The banks have been permitted to defer the recovery of interest applied on working capital finance facilities during the period March 01, 2020 up to May 31,Thus, the interest debited to the account during the period March 01, 2020, up to May 31, 2020, would be considered as ‘not due’ till May 31, 2020. Hence, while applying the yardsticks of ‘out of order’ status for such accounts, the interest component would be required to be excluded during the period March 01, 2020, to May 31, 2020. However, the said interest which is considered as ‘not
due’ during such period, would be required to be considered as due on June 01, 2020.
As regards the applicability of IRAC norms, the relief in the form of deferment of interest during the said period will have limited impact to the extent of following while applying three yardsticks of ‘out of order’ status of an account, viz., if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days, or in cases where the outstanding balance in the principal operating account is less than the sanctioned limit / drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period.
1.3. Other facilities like LCBD, Bill Discounting, etc.
The captioned RBI circular does not grant any relief to other facilities like LCBD and Bill Discounting as both are neither in the form of Term Loan nor in the form of Cash Credit / Overdraft facilities.
The captioned RBI circular does not grant any relief to the Investment portfolio of the bank. Click here