RBI changes NPA classification period to 180 days from 90 days

The Reserve Bank of India (RBI) has decided to provide a relief to the standard bank accounts availing a loan moratorium between March 1 and May 31. The 90-day non-performing asset (NPA) norm would exclude the moratorium period for such accounts, RBI Governor Shaktikanta Das said. The RBI would provide a standstill on asset classification for standard bank accounts, implying these couldn't be classified as bad assets after stipulated 90-day period. However, the banks will have to maintain an additional provisioning of 10 per cent on such accounts, RBI Governor Shaktikanta Das also said. "In respect of all accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020, the 90-day NPA norm shall exclude the moratorium period, i.e., there would an asset classification standstill for all such accounts from March 1, 2020 to May 31, 2020," RBI said in the statement. On March 27, RBI announced a three-month moratorium on term loans whose installments were due between March 1 and May 31.

"With the objective of ensuring that banks maintain sufficient buffers and remain adequately provisioned to meet future challenges, they will have to maintain higher provision of 10 per cent on all such accounts under the standstill, spread over two quarters, i.e., March, 2020 and June, 2020," the apex bank said.

According to the RBI's latest announcement, the bad loan classification period now changes from 90 days to 180 days for all such accounts. The accounts turn non-performing assets (NPAs) after 90 days of overdue in making payments. The accounts are classified as standard before the 90-day period. In addition, the RBI also allowed the NBFCs to grant relaxed NPA classification to the borrowers.

"The 90 day extension in NPA reckoning for  stressed standard assets as on 1 March effectively postpones NPA classification for accounts that were slipping to NPA between March and May. Given the optimism around economy coming back in phases and the support being extended through emergency COVID loans and other lines of credit, this will help all sectors, especially MSME  and Retail," Padmaja Chunduru, MD & CEO, Indian Bank, said.

"The exclusion of the moratorium period in evaluating NPA's/asset classification will also help the NBFC immensely. Overall, the 25 BPS in the reverse repo rate and the other liquidity injection measures are a much needed positive move," Rashmi Saluja, Executive Chairperson-Religare Enterprises Limited, said.

Also read: Coronavirus lockdown: Kerala shifts gear to kickstart economy

Also read: Coronavirus: Auto firms cut salaries, stop increment as sector takes a hit