Banks get 90 days before terming loans as bad debt

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Mumbai: Granting banks more leeway in classifying loans as bad debts, the Reserve Bank of India (RBI) has said that lenders can now wait for 90 more days before classifying a loan as a non-performing asset (NPA). In a circular to all lenders, the RBI said that it has decided to provide 30 days, in addition to the 60 days of relief provided in November post-demonetisation.

The relaxation will apply to those borrowers running working capital account crop loans with any bank where the sanctioned limit is Rs 1 crore or less. It will also apply to term loans for business purposes, secured or otherwise, where the original sanctioned amount is Rs 1 crore or less.

The dispensation will apply to banks, non-banking finance companies, microfinance companies and housing finance institutions. Banks have hastened to clarify that this would mean credit card holders cannot delay payment as such a move would trigger all the charges.

The central bank has said that the special dispensation will apply to dues payable between November 1, 2016 and December 31, 2016.

The special dispensation will help both banks as well as borrowers. Banks will gain as they will be saved from showing higher NPAs in their books and making provisions towards them. Borrowers, if they are classified as NPA, face recovery proceedings and risk having credit lines shut off.

The additional time given will defer the classification of an existing standard asset as substandard but will not allow banks to delaying the migration of an account which is already an NPA into a category requiring higher provision. Dues payable after January 1, 2017 will not be granted the special dispensation.

Following the government’s decision to demonetise high-value currency, there has been a massive cash crunch that hurt sales across businesses. The unorganised sector was expected to be the worst hit.