RBI moratorium on term and working capital loans may hurt business

Corporates may end up paying four months interest on their loans together.

The moratorium granted by the Reserve Bank of India (RBI), both on term and working capital loans, to provide a helping hand to corporates and customers struggling with inadequate liquidity, may become a cause for concern for them later.
Under the RBI scheme, there is a three-month moratorium on the interest payment on working capital loans.

So, after the end of three months, the deferred interest (of three months) will be collected immediately after the moratorium ends. Hence, corporates may end up paying four months interest on their loans together.

This could come as a blow to companies, given the current situation. C S Setty, MD at SBI, told the media on Wednesday that if anyone is unable to pay the amount after the moratorium period, it will not immediately impact the asset quality though the account will become special mention account 1 (SMA 1).

Even if they delay the payment by another 60 days, it will be a SMA 2 account and not a non-performing asset.

SMA 2 accounts are those where repayment has been delayed by between 61 and 90 days. If an account sees repayments delayed by 90 days, it turns into an NPA.

Setty said businesses may face difficulty in paying four months interest immediately after the end of moratorium. “We may speak to the Indian Banks’ Association and get clarification from the RBI if such loans can be restructured.” Similarly, those who opt for moratorium may end up paying more. Any deferment of interest by borrowers under the scheme will add to the total cost paid by the borrowers, Shetty said.

If customers have the ability to pay the EMIs, then they should shy away from availing the scheme because the cost will add up, he added.