Repayment delay on the part of borrowers should not be classified default up to a point in time
Banks plan to move the Reserve Bank of India (RBI), seeking regulatory forbearance on loans given by them to the micro, small and medium enterprises (MSMEs) and affordable housing segments, as borrowers in this category could fall behind in making loan repayments, due to the novel coronavirus outbreak.
Banks, under the aegis of the Indian Banks’ Association, are going to make a plea to the banking regulator that in the current stressed times, a delay, say, of up to 90 days, in loan repayment beyond what is currently the threshold for recognising a loan as non-performing, should not be considered as a default.
Bankers’ main concern
While the liquidity taps — rupee as well as dollar — opened up by the RBI in the last couple of months have been helpful, bankers’ main worry comes from the provisioning they may have to make if the RBI does not give them leeway on the income recognition and asset classification norms, should loans given to MSMEs and affordable housing slip.
They fear banks’ bottom lines will be hit if they have to make provisioning to the aforementioned segments as per the standard regulatory prescription.
An asset becomes non-performing when it ceases to generate income for the bank. A non-performing asset (NPA) is a loan or an advance where: interest and/or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan; the account remains ‘out of order’ in respect of an overdraft/cash credit; the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted; the instalment of principal or interest thereon remains overdue for two crop seasons for short-duration crops; the instalment of principal or interest thereon remains overdue for one crop season for long-duration crops.