MUMBAI: Indian banks are seeking that the Reserve Bank of India (RBI) freeze the recognition of bad loans as on February 29 to make its loans repayments moratorium effective, failing which thousands of borrowers are staring at the prospect of being classified as defaulters, said two people familiar with the matter.
Lenders do not want any borrower who makes use of the moratorium to fall into the category of a non-performing loan because of having missed payments in the previous two months – January and February. A loan gets classified as a bad loan if the interest or principal is overdue 90 days.
Many borrowers fail to meet the repayment schedule in the normal course of their businesses due to cash flow issues, failures that do not get referred to credit information bureaus for classification as defaulter. But they manage to pay up before the 90-day deadline and keep their accounts current. That possibility gets ruled out if one opts for moratorium now.
After the RBI facilitated a moratorium between March 1 and May 31, banks are faced with a peculiar problem. What happens to those borrowers who missed paying in January and February but would have paid up by March 31? Those customers now stare at being classified as defaulters if they make use of the moratorium. So, banks want the regulator to address the issue. “A lot of borrowers pay up between 60 and 90 days,” said a banker familiar with the proposal.
“Some of these loans will complete 90 days in March and if they miss payments due to the moratorium they will have to be declared as NPAs. Many of these borrowers are suffering due to the pandemic.’’ RBI governor Shaktikanta Das last Friday rolled out measures to cushion the impact of the Covid-19-induced lockdown. With little economic activity, it would be impossible for businesses to meet their payments commitment. So, the RBI proposed that all payments falling between March1and May 31be pushed behind by similar duration for those hit by the shutdown.
“It is unfair for businesses as they are facing challenging times and are suffering. This is the time to be sympathetic. In these times, compassion has to take over from processes and systems,” said Rishi Bagla, director, OMR Bagla Automotive Systems.
In banking parlance, those who miss payments and still not beyond the 90-day deadline are classified under the so called Special Mention Accounts – SMA-0 (up to 30 days, SMA-1 (31 to 60 days), and SM- 2 (61 to 90 days).