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RBI gives NPA classification reprieve to accounts under 3-month moratorium

Bad loan classification period now changes to 180 days for all such accounts from 90 days at present. (Mint )Premium
Bad loan classification period now changes to 180 days for all such accounts from 90 days at present. (Mint )

  • Banks classify accounts as standard, substandard and doubtful, based on the number of days their payments are delayed
  • Borrowers turn non-performing only after 90 days of overdue and are classified as standard prior to that, notwithstanding any delay in repayments

Mumbai: The Reserve Bank of India has decided to provide an asset classification standstill for standard accounts that avail a moratorium between 1 March and 31 May, said governor Shaktikanta Das on Friday.

This effectively means that the bad loan classification period changes to 180 days for all such accounts from 90 days.

Banks classify accounts as standard, substandard and doubtful, based on the number of days their payments are delayed. Borrowers turn non-performing only after 90 days of overdue and are classified as standard prior to that, notwithstanding any delay in repayments.

Addressing the media through a video conferencing on Friday, Das said, the central bank recognises that the onset of covid-19 has also exacerbated the challenges for borrowers even to honour repayment commitments due on or before 29 February 29.

“There will be an asset classification standstill for all such accounts from 1 March to 31 May 2020," Das said, adding that these guidelines also apply to non-banking financial companies after their boards approved policies in this regard.

However, to ensure that the banking system has sufficient buffers against future asset classification woes, the central bank has mandated additional provisions on all these moratorium accounts.

“With the objectives that banks maintain sufficient buffers and remain adequately provisioned to meet future challenges they will have to maintain a higher provision of 10% on all such accounts under the standstill spread over two quarters, March 2020 and June 2020. These provisions can be adjusted later on against the provisioning requirements for actual slippage in such accounts," said Das.

RBI on 27 March had said financial institutions are “permitted" to grant a moratorium to borrowers for three months from 1 March.

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