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.