Prior to RBI’s announcement on Friday, three-month moratorium was limited to accounts whose installments were falling due after March 1, 2020.
By Ankur Mishra
The Reserve Bank of India on Friday granted banks as well as non-banking financial companies (NBFCs) a breather from recognising non-performing assets (NPAs) during three-month moratorium from March 1, 2020. After RBI’s asset classification relief to exclude three-month moratorium period, bad loan classification period will change to 180 days effectively. RBI on March 27 had said financial institutions are permitted to grant a moratorium to borrowers for three months from March 1.
While granting this relief on NPA classification, the central bank maintained caution by asking banks to provide 10% additional provisioning for availing the benefit. Some banks are, however, unhappy with 10% additional provisioning requirement for availing RBI’s asset classification benefit. A senior banker, who did not wish to be named, said: “We will estimate provisioning requirement, and will go to RBI if it is too high.” The regulator needs to see whether capital is to be used for growth or provisioning, he further said.
Taking cognizance of risk build-up in balance sheets, RBI announced 10% additional provisioning for availing the benefit. “They will have to maintain higher provision of 10% on all such accounts under the standstill, spread over two quarters,” RBI governor Shaktikanta Das said. The provisions can be adjusted later against the provisioning requirements for actual slippages, the governor specified further.
Prior to RBI’s announcement on Friday, three-month moratorium was limited to accounts whose installments were falling due after March 1, 2020. However, lenders on behalf of Indian Banks’ Association (IBA) had earlier requested the regulator to grant relief on NPA classification for the companies which defaulted on payments prior to March 1,2020 as well. The courts also intervened case-to-case basis for excluding moratorium period in classification of NPAs. The Delhi HC on April 6 said Anant Raj cannot be classified as NPA by Yes Bank during the moratorium period of three months from March 1. Similarly, the Bombay HC on April 12 directed ICICI Bank to exclude moratorium period for classifying Transcon Skycity and Transcon Iconica as NPAs.