IDFC FIRST Bank Offers 3 Months Moratorium Extension on Loans
Due to the extended lockdown and downfall of the economy caused by the COVID-19 crisis, cash-flow and earnings of many customers have been impacted. To handle such a situation, RBI had introduced COVID-19 – Regulatory Package on 27.01.2020. Under this policy, IDFC FIRST Bank offered 3 months moratorium period (from 01.03.2020 to 31.05.2020 ) to all its retail customers who had availed instalment loan, (like home loans, loan against property, personal loans, vehicle loans, two wheeler loans, consumer durable loans, business loans on instalments, etc.) before 01.04.2020.
Now, on 23.05.2020 to cope with the continuing effects of the coronavirus pandemic, RBI had issued guidelines to extend this moratorium by 3 more months, i.e., from 01.06.2020 to 31.08.2020.
All retail customers who have availed instalment loans mentioned above from the bank are eligible for up to 3 months moratorium on instalment payment. However, opting for the relief will result in levy of interest on the outstanding loan amount during these three months said and extension of overall tenure of the loan. Hence, the bank has advised its customers to avail of the benefit only if they are unable to repay their loan in the current situation.
✅ What are the key highlights of RBI COVID-19 – Regulatory Package?
Key highlights of the relief package are as follows:
- Lending institutions in India are permitted to allow a moratorium of up to 6 months. RBI has neither given instruction to the lenders to offer this relaxation nor has it granted a leeway to the borrowers to delay or defer the loan repayment. The moratorium will have to be offered by the lending institution to the borrowers.
- The lenders are allowed to grant this moratorium on payment of any/ all instalments falling due between 01.03.2020 and 31.08.2020.
- The moratorium includes instalment payments falling due 01.03.2020 to 31.08.2020 in the form of principal and/or interest components, Equated Monthly Instalments (EMIs), bullet repayments, and credit card dues. Such instalments will also include those instalments which were originally due up to 31.05.2020 and which were initially provided moratorium of up to 3 months.
- The moratorium is a “pause” in contracted repayment obligations, but the interest will continue to accrue and be payable by the customer.
- It is not mandatory to provide a moratorium of 6 months. Lending institutions at their own discretion can allow a moratorium of up to 6 months. It may be less than 6 months as well.
- Lending institutions may defer the interest recovery applied on Working Capital Facilities (Cash Credit or Overdraft) during 01.03.2020 to 31.08.2020 (“deferment”).
- Lending institutions are allowed (at their discretion) to convert the accumulated interest for the said deferment period into a funded interest term loan (FITL), which will be repayable not later than 31.03.2021.
- For working capital facilities offered in the form of Cash Credit or Overdraft to borrowers facing financial stress due to economic fallout because of the pandemic, lending institutions can recalculate the drawing power by reducing the margins or reassessing the working capital cycle. This relief will be available to all such changes effected up to 31.08.2020 and will be dependent on the lending institutions’ satisfaction.
- For all the eligible customers, the period from 01.03.2020 to 31.08.2020 will be excluded for counting the past dues, for asset classification under the IRAC norms.
✅ What is the approach taken by IDFC FIRST Bank?
The bank proposes to provide the benefit of the moratorium to all its eligible and interested customers, without any additional charges. Basis of the above guidelines of RBI, the policy adopted by the bank is as follows:
- All retail customers who had availed instalment loans, such as home loans, loan against property, vehicle loans, two wheeler loans, personal loans, consumer durable loans, business loans on instalments, and other such retail instalment loans before 01.04.2020 are eligible.
- Customers are advised that availing the moratorium will lead to interest being levied on the outstanding loan amount during the moratorium period as well as the extended tenure of their loan. Hence customers should avail of this relaxation only if they are unable to service their loan.
- Under the policy, the bank can allow a moratorium of up to 6 months on payment of instalments, including the principal and/or interest components, bullet repayments, EMIs, and credit card dues, falling due from 01.03.2020 to 31.08.2020.
- Interest will continue to accrue on the outstanding amount of such term loans during the moratorium period at the contracted rate of interest.
- The bank will debit the customer’s account for post-dated cheques (PDCs)/ ECS/ NACH mandates, etc., for collection on the respective due dates. If the instalment is cleared through the instrument provided by customers and presented by the bank, no refund will be issued. The moratorium will only be provided for subsequent instalments on the request of the customer.
- Who wishes to avail the moratorium benefit should send an email to the bank from their registered email address at email@example.com, mentioning their Loan Account Number, 5 days before the due date.
- For March, April, and May, the bank provided automatic moratorium to all Rural and Agriculture customers. These customers will be contacted in June 2020 to check if they want to extend the moratorium for another 3 months (June, July, and August) or want to start repayments. If they avail the extended moratorium, following moratorium benefits will be available to them:
- Deferment for paying instalments for up to 6 months
- Not reporting them as defaulter to bureaus during the moratorium period
- No penalty and bounce charges on unpaid instalments during the moratorium period
- Retail customers who have no overdues before 01.03.2020, but whose repayment instruments are not cleared on presentation between 01.03.2020 to 31.08.2020, will be assumed to be impacted by COVID-19 pandemic. Such customers will automatically be offered relief under moratorium and related benefits as mentioned above. If customers do not avail the moratorium, they can pay their unpaid dues or returned instrument online to the bank.
- All customers who are classified as Standard as on 29.02.2020, and who availed the moratorium on payment of instalment or deferment of interest from 01.03.2020 to 31.08.2020, will be excluded for counting the past due, for asset classification under the IRAC norms.
- For such retail instalment loans that have been provided moratorium benefits, the repayment schedule will be extended by the bank to recover the deferred instalments with the applicable interest amount. The interest will be levied on a monthly basis and will be added to the principal outstanding, resulting in the extension of the remaining tenure of the loan as the EMIs will remain unchanged.
- No penalty or bounce cheque charges will be levied for borrowers granted moratorium under the policy.
- Corporates, SMEs, and MSMEs (including Kisan Credit Card and Business Banking) customers who have obtained working capital facilities from the bank can also avail the moratorium relief. Interested customers can contact their relationship managers for relief under this policy. The relief will be granted based on review by the bank and according to the terms applicable to them.
- The recovery of interest applied to the Working Capital Facilities during the deferment period may be deferred by the bank for up to 6 months. The accrued interest may be recovered immediately on completion of this period or the bank may convert it into FITL, repayable not later than 31.03.2021.
- The bank may recalculate the ‘drawing power’ of the working capital facilities granted in the form of Cash Credit/ Overdraft, by reducing the margins or by reassessing the working capital cycle. The relief will be dependent on the satisfaction of the bank.
- Such reduction of margin will be valid in respect of all changes effected up to 31.08.2020 for a period as assessed by the bank or extended time based on the impact on the working capital cycle. After that period, but not later than 31.03.2021, the margin will revert to the pre-relief margin stipulated by the bank.
- The bank may reassess the working capital cycle of those customers who are facing stress due to economic fallout because of the pandemic. Such concession will be valid to all changes effected up to 31.08.2020 for a period assessed by the bank (maximum up to 31.03.2021), as per the impact on the working capital cycle.
- In the arrangement of working capital is under a Consortium, the bank will conduct a reassessment of limits with the assessment of the Lead Bank, including at a later stage.
✅ What are the criteria considered by the bank for providing the above mentioned relief?
- Issues in borrower’s operations on account of manpower, supply chain, demand, procurement, sales, manufacturing, collections, reschedulement/ cancellation of orders, and so on due to the impact of COVID-19 pandemic on profitability/ cash flows.
- Fall in overall financial profile (revenues and cash flow) due to the COVID-19 pandemic, including elongation of the working capital cycle caused by an increase in inventory and debtors/ receivables.
- Borrowers whose primary business is to on-lend due to the pandemic can be considered by the bank.
- Inability to conduct viable business or provide services or shutdown of unit/ workplace due to disruption by COVID 19 pandemic affecting the ability to service debt.
- Other criteria relevant case to case basis
✅ Are there any conditions?
The conditions regarding the relief include:
- The bank will provide separate terms & conditions for different categories of loans. Other credit conditions mentioned in the sanction letters already issued will remain unaffected.
- For reliefs granted under the policy, the bank may require some documentation, including through electronic form.
- Borrowers who have already paid their instalments or who serviced their interest for the month of March 2020, can avail moratorium for instalments due between April to August 2020.
- The bank will consider the stress on the borrowers due to the pandemic when deciding whether to provide moratorium benefits to them.
- The borrower should not be charged under any IBC proceedings or classified as wilful defaulter/ fraud/ RFA by any bank/ financial institution.
- The moratorium granted to borrowers will not be qualified as default for supervisory reporting and for reporting to the credit bureaus.
- The relief given by RBI will downgrade the asset classification, in line with extant RBI Guidelines
- The bank retains the discretion to make any changes in the policy from time to time and announce it on its website.