The Central Bank has extended the debt moratorium offered to COVID-hit businesses and individuals by a further six months from October, following the spread of the second wave of the pandemic in the country.
The necessary directive to the licensed commercial and specialised banks as well as Non-Bank Financial Institutions (NBFIs) was issued yesterday. The financial sector has also been requested to offer any additional concessions to borrowers in a way that the overall benefits to borrowers are not less than the benefits offered under the latest circular. The moratorium should be granted for both capital and interest on the request made by affected borrowers. Interested businesses and individuals can make the written request by 30 November.
Licensed banks are required to provide a simple format for affected borrowers to make the request and communicate the concessions, deadline and format for submission via printed and/or electronic means including email and SMS.Previously the original debt moratorium which ended in September 2020 was extended only to tourism and construction but with yesterday’s directive the relief has been expanded to all and sundry.
The Central Bank said businesses, proprietors and individuals engaged in tourism, direct and indirect export-related businesses including apparel, IT, tea, spices, plantation, logistic suppliers, event management, and any other sectors that had been adversely affected by work disruption and local and overseas lockdowns resulting from COVID-19 were included.
Furthermore, it includes Small and Medium Enterprises (SMEs) and individuals engaged in business sectors such as manufacturing, non-financial services, agriculture (including processing), construction, value addition and trading businesses including authorised domestic pharmaceutical suppliers. For this purpose, SMEs refer to businesses with an annual turnover up to Rs. 1 billion.
Debt moratorium extension is allowed for self-employment businesses and individuals who have lost their jobs or income due to the outbreak of COVID-19 as well as foreign currency earners (individuals and businesses) who have to repay loans in foreign currency and whose incomes/businesses have been adversely affected due to the outbreak of COVID-19.
Debt moratorium can be extended to all term loans, leasing facilities, pawning, overdrafts, trade finance or any other credit facilities denominated in rupees and foreign currency, which are in the performing category as at 1 October 2020. In the case of granting moratorium for Saubagya COVID-19 Renaissance Facility under Phase I, II and III, licensed banks have been asked to adhere to the instructions issued by CBSL on 6 November 2020.
Licensed banks and NBFIs will be allowed to convert the capital and interest on contracted rate falling due during the moratorium period from 1 October 2020 to 31 March 2021, or a shorter period as applicable, into a term loan.
Licensed banks may charge an interest rate for the converted loan, not exceeding the latest auction rate for 364-day Treasury Bills, available immediately after the respective moratorium period, plus 1% per annum. In the case of foreign currency loans, licensed banks shall charge an interest rate below the current market interest rate or the contracted interest rate whichever is lower, for the converted loan.
The repayment period of such converted loan shall be minimum of 24 months and the repayment shall commence from 01 April 2021.
NBFIs can do same but at 5.5% per annum and not exceed 11.5% per annum.
In the case of overdrafts, licensed banks should convert the interest falling due during the moratorium period from 1 October 2020 to 31 March 2021, or a shorter period as applicable, into a term loan and charge an interest rate not exceeding 4% per annum for the converted loan. The repayment period of such converted loan will be minimum of 12 months and the repayment shall commence from 01 April 2021.
However, if the borrower wishes to repay the converted loan in less than the specified period or if a licensed bank and NBFIs wishes to offer a longer period than the specified period, licensed banks may facilitate such requests. Licensed bank/NBFIs and the borrower should agree on the interest rate, if the repayment period of the converted loan varies from the stipulated period.
In the case of pawning facilities, the due dates falling during the moratorium period will be extended till 01 April 2021.
In the case of credit card facilities, licensed banks may take appropriate business decisions to accommodate any request for concessions made by eligible borrowers.
Licensed banks and NBFIs have been asked to waive off the penal interest accrued and unpaid as at 1 October 2020, if any. Penal interest will not be accrued and charged during the moratorium period.
Licensed banks are not allowed to levy excessive fees or charges in relation to granting of the moratorium.
The Central Bank wants licensed banks and NBFIs to ensure that eligible borrowers are made aware of the structure of moratorium facilities prior to approving such moratorium. In the case of declined requests, licensed banks and NBFIs should clearly mention the reason for such decline.
(FT)