Banks unclear on classification of Rs 1 lakh crore as NPA in Q4

Published: April 10, 2020 2:50:45 AM

The Delhi HC on April 6 said Anant Raj cannot be classified as an NPA by Yes Bank during the moratorium period of three months from March 1 announced by the Reserve Bank of India (RBI).

However, banks are awaiting a formal direction from the regulator on the same.However, banks are awaiting a formal direction from the regulator on the same.

By Ankur Mishra

The fate of bad loans to the tune of Rs 1 lakh crore hangs in balance as bankers say they can’t give relief to cases that have turned into non-performing assets (NPAs) in March, despite the Delhi High Court (HC) interim order in the Anant Raj Industries case.

The Delhi HC on April 6 said Anant Raj cannot be classified as an NPA by Yes Bank during the moratorium period of three months from March 1 announced by the Reserve Bank of India (RBI).

The HC directive is widely considered as a relief for banks who wanted the moratorium to be applicable for companies that had defaulted from January 1, 2020, like Anant Raj. However, banks are awaiting a formal direction from the regulator on the same.

Banks follow stepwise mechanism to classify loans as NPAs if a borrower does not pay within 90 days. Missing a payment after 30 days leads to a loan being classified as special mention account-1 (SMA-1). Failing to make payments for two consecutive months leads to an account being classified as SMA-2. A loan is finally classified as NPA after missing payment more than 90 days.

Anant Raj had taken a loan of Rs 1,570 crore from Yes Bank. It had repaid Rs 1,056 crore but defaulted on the instalment due on January 1, 2020. The account was classified as SMA-2 by Yes Bank till February, since the payment was overdue for more than 60 days, and the lender sent a notice to Anant Raj to be classified as NPA if the payment was not done till March 31, 2020.

The Indian Banks’ Association (IBA) had made a separate representation to RBI, requesting it to grant relief to companies that had defaulted on payments from January 1, 2020. However, the regulator had refused to grant the relief through a letter to IBA. RBI, in its letter to IBA, has stated that a borrower who has been in default even before March 1, 2020, cannot be given benefit of economic fallout due to pandemic Covid-19. RBI specified to bankers that the benefit of moratorium could be extended only in respect of payment falling due during the period of March 1, 2020 to May 31, 2020.

“We can only react when a direction comes from the regulator, otherwise the direction remains limited to one account,” a source told FE. Since the regulator has already denied our request earlier, it is up to RBI to come and clarify on classification of NPAs as per the Delhi High Court order, the source added. “The window for other companies also remains open to take legal remedy, like Anant Raj did,” the source further said.

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