COVID loan relief extended to finance company borrowers by one month

The Central Bank has given instructions to licensed finance and leasing companies to extend the relief afforded to their pandemic-affected borrowers through the end of September, as the most recent round of relief expired on August 31, 2021. 

In a circular issued last week, the Central Bank asked all non-bank finance companies to “extend the deferment of recovery of capital, interest or both of existing credit facilities of borrowers who enjoy the deferment”, under the previous instructions issued in June. 

In June, the Central Bank asked the non-bank finance company sector to offer payment relief on its borrowers affected by the pandemic-induced economic restrictions, effective from May 15, 2021, through August 31, 2021, considering the financial difficulties they faced through loss of job, loss or reduction in income, salaries or sales and closure of business. 

However, it remains uncertain if the extension, which is by a month, would be adequate for the mostly subprime borrowers in the sector, who became more vulnerable than others, due to the pandemic. 

A fortnight ago, the Central Bank extended the loan moratorium by four months through the end of December this year, for the borrowers of the banking sector. 

However, it appears that the one-month extension most likely to be an interim measure until the new Central Bank Governor, who yet to take office, reviews its adequacy after considering the requests and appeals from the stakeholders.  While the rest of the concessions are identical to the concessions in the June circular, changes are mostly made to cover the extended relief period. 

For instance, finance companies have been barred from charging or accruing penal interest during the concessionary period extended through September 2021. 

Further, they are required to accommodate the requests received from the borrowers to delay the loan repayment due dates by a maximum of 15 days, considering the current quarantine curfew, without deferring or restructuring such facilities. 

“The NBFIs shall not charge any additional interest or other charges for such delay,” said the circular signed by Central Bank Governor Prof. W.D. Lakshman, who will step down from the post today (September 14). 

Further, in respect of the non-performing loans, instructions were given to suspend all types of recovery actions against such facilities of eligible borrowers classified as non-performing loans on or after April 01, 2020, until September 30, 2021. 

Further, finance companies have also been barred from charging any early settlement fee from the eligible borrowers, if a borrower decides to settle his entire credit facilities on or before September 30, 2021, instead of opting for the deferment or the restructuring of his facilities under the circular.