Realising that small borrowers may fall behind on repayment of their loan dues following the cash crunch triggered by demonetisation of ₹500 and ₹1,000 notes, the Reserve Bank of India has temporarily relaxed prudential norms for banks and non-banking finance companies, allowing short-term deferment of classification of such loans as sub-standard.

By allowing regulated entities (REs), such as banks and non-banking finance companies (NBFCs), an additional 60 days beyond what is applicable to them for recognition of a loan account as sub-standard, the central bank has saved them the burden of provisioning. The relaxed norm applies to dues payable between November 1 and December 31.

Once the loan is classified as sub-standard, the lenders have to make a general provision of 15 per cent on the total outstanding; this could have adverse implications for their bottomline.

The RBI said the relaxation in income recognition and asset classification norms is applicable in the cases of working capital accounts with any bank, where the sanctioned limit is ₹1 crore or less. Further, the norm is applicable to term loans, whether business or personal, secured or otherwise, the original sanctioned amount whereof is ₹1 crore or less, on the books of any bank or any NBFC, including NBFC (Micro Finance Institution). This will include housing loans and agriculture loans.

The RBI said the limits in the above-mentioned cases are mutually exclusive limits applicable to the respective category of loans.

Short-term deferment REs have been asked to ensure that this is a short-term deferment of classification as sub-standard due to delay in payment of dues arising during the specified period (November 1, 2016 to December 31, 2016 ) and does not result in restructuring of the loans.

The additional time will only apply for the deferment of the classification of an existing standard asset as sub-standard and not for delaying the migration of an account across sub-categories of NPA.

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