Loans and refinancing

- Aakash Agarwal


Background overview and objectives:

The Coronavirus outbreak has been labelled a pandemic by the World Health Organization (WHO) and to curb the spread of the virus, India has been in a state of lockdown since March 24, 2020. Businesses, MSMEs, industrial establishments, etc. were forced to shut shop and have only recently been permitted by the government to resume their operations under strict restrictions and guidelines. The COVID-19 pandemic has decimated the MSME revenue and caused massive financial losses. The Reserve Bank of India (RBI) displaying conventional prudence and responsibility has taken a series of relief measures to ensure that the impact on businesses and MSMEs is mitigated. In doing so, the RBI has imposed a moratorium on term loans and deferred payment of interest on working capital facilities. Further, various public sector banks have released COVID-19 Emergency Credit Line to ensure that MSEMs do not face a liquidity crisis.


The following section of the primer gives a brief overview of the main relief measures taken by the Government of India for businesses and MSMEs facing financial distress.


FAQs and Solutions

Q. What are the benefits, waivers and facilities available from banks and financial institutions to support my business for Covid-19 related losses?

Q. What are the relief measures taken by the Reserve Bank of India (RBI) to curtail Covid-19 related damages caused to my business?


Emergency Credit Line by Public Sector Banks (PSBs)

  • More than a dozen PSBs have rolled out COVID-19 Emergency Credit Line to deal with the hardship faced by various sectors of the economy.

  • As of March 26, 2020, as many as 15 PSBs out of the total 18 government-owned banks have declared such schemes.

  • PSBs have announced these schemes for existing MSME borrowers. However, some banks have additionally extended the schemes to other segments including agriculture, self-help groups and organised sector employees.

Q.How do I avail the benefits of this COVID-19 Emergency Credit Line?

Various PSBs have released their own customised emergency credit lines. Customers should approach individual PSBs to get further information on these emergency credit lines and to avail the benefits thereunder.


Moratorium on Term Loans

  • All commercial banks, co-operative banks, all-India financial institutions, and Non Banking Financial Companies (NBFCs) have been permitted by the Reserve Bank of India to grant a moratorium of three months on payment of all instalments falling due between March 1, 2020 and May 31, 2020 in respect of all term loans (including agricultural term loans, retail and crop loans).

  • Borrowers have the option to choose whether they want to avail the moratorium or not. In case, the borrower opts for the moratorium, the borrower will not be liable to pay the loan EMI instalments during such moratorium period. However, interest will continue to accrue on the outstanding portion of the term loans during the moratorium period.

  • Deferred instalments under the moratorium 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 instalments (EMIs); and (iv) credit card dues.

  • Availing such a moratorium does not lead to a downgrading of the borrower's credit rating or affect the risk classification of the loan.

  • Availing the moratorium does not change the existing terms and conditions of the loan.

  • Borrower will have to pay additional interest for three months by either increasing the amount per instalment or number of instalments.

  • All the banks have announced their individual process for availing moratorium. Check your bank’s website/ call their customer support, for updated information.

Q. Should I opt for the moratorium?

If you have enough cash flow, it is advised not to avail of this moratorium. Opt for it only if you are facing a cash flow problem.


Q. How do I opt for the moratorium?

If you want to opt for the 3-month moratorium on your EMIs, then you will have to intimate the bank instructing the same. If you have given a standing instruction (SI) to the bank to debit the EMI every month, then if you have funds in your savings account, money will continue to get debited towards EMI payments.


Deferment of Interest on Working Capital Facilities

  • In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions have been permitted to defer the recovery of interest applied in respect of all such facilities during the period from March 1, 2020 upto May 31, 2020.

  • The accumulated accrued interest shall be recovered immediately after the completion of the aforesaid period.

Aatmanirbhar Bharat Abhiyan

Revision in the definition of “MSME”: Definition of “MSMEs” will be revised by revising the investment limits upwards and adding an additional criteria of turnover. Further, distinction between the manufacturing and service sector will be eliminated.


Collateral-free Automatic Loans for businesses (including MSMEs):

Q. What do we mean by collateral free automatic loans for businesses?

A collateral free loan means that borrowers do not have to offer any asset or pledge collateral to borrow against it. Under this scheme, no fresh collateral will be required.


Q. How much outstanding credit will it cover?

The emergency credit line being extended by banks and NBFCs to businesses and MSMEs will cover up to almost 20 percent of their outstanding credit, as of February 29, 2020.


Q. Who will be able to avail it?

Borrowers with up to Rs. 25 crore outstanding and Rs. 100 crore turnover will be able to avail it.


Q. What will be the tenure and rate of interest of these loans?

These loans will have 4 year tenure and interest rates will be capped. The moratorium will last for 12 months.


Q. What is the last date for availing this scheme?

This scheme can be availed till October 31, 2020.


Q. What are the other benefits of this scheme?

There will be 100% credit guarantee cover to banks and NBFCs on principal and interest and no guarantee fee will be required.


Notes from Finance Minister, Ms. Nirmala Sitharaman’s speech on 17-05-2020

  • No fresh insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (“Code”) will be initiated up to one year.

  • The minimum threshold to initiate insolvency proceedings under the Code has been raised to Rs. 1 crore as compared to the existing threshold of Rs. 1 lakh.

  • Coronavirus-related debt will be excluded from the definition of “default” under the Code. What constitutes as “coronavirus-related debt” will be clarified by the Government of India by subsequent notifications.

  • For MSMEs, a special insolvency resolution framework will be notified under Section 240A of the Code.

Where to go next?

Customers should immediately contact their respective concerned banks for obtaining further information on the relief measures for which they may be eligible.


Aakash Agarwal is a final year student of Bachelor of Legal Science (BLS) & Bachelor of Law (LLB) at Government Law College, Mumbai.

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Justice Adda was a part of the Cambridge Social Ventures Programme in the Cambridge Centre for Social Innovation at Cambridge Judge Business School 2016-17.