Impact of COVID-19 on stressed assets

India had four phases of lockdown until 31 May 2020. On 1 June 2020, lockdown was extended until 30 June 2020 in containment zones, with services resuming in phased manner starting from 8 June 2020 (Unlock 1.0).

Impact of lockdown

  • Increased number of Non-performing Assets (NPA)
  • Potential of defaults going up further

Policy and regulatory measures

  • RBI has announced a package to mitigate negative effects of COVID-19, revive growth, and preserve financial stability.

  • Expanding liquidity in the system to restore normalcy (Cash Reserve Ratio [CRR], policy rate cuts, etc.)

  • Reinforcing monetary transmission for smooth credit flow

  • Easing financial stress caused by COVID-19 (moratorium on debt repayment and asset classification norms)

  • Supporting measures help exports and imports (liquidity facility for export credit and extension of time for import payments)

  • Improving the functioning of financial markets

  • Central Government has increased the threshold limit for triggering the insolvency process from INR 1 lakh to INR 1 crore for Micro, Small and Medium Enterprises (MSMEs).

  • Faster clearance of tax refunds and directive to PSU’s to clear outstanding dues of vendors.

  • SEBI has eased fundraising, open offer norms for distressed companies.

Additional steps anticipated

  • Increasing the number of National Company Law Tribunal (NCLT) members, benches, and infrastructure

  • Relaxing rules for categorisation of NPAs (90 days to 180 days)

  • Clarification on interest charged during moratorium period, a petitioner had moved to Supreme Court (SC) seeking an interest waiver.
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