The Reserve Bank of India is likely to take a long, hard look at banks’ request to allow restructuring of loans without asset classification downgrade and temporarily increase the 90-day non-performing asset (NPA) recognition norm to 180 days.

The reason for this is that the ability of borrowers — across the retail, micro, small and medium enterprise (MSME), corporate and agriculture segments — to service loans could be seriously undermined as the ripple effect of the Covid-19 pandemic, necessitating a nationwide lockdown, is being felt across the economy.

Bankers say it may take anywhere between six months and a year for borrowers to get back into the business as usual (BAU) mode from the coronavirus-induced shock.

Hence, during this period, borrowers may require handholding from lenders, who in turn will need the regulatory dispensation to deal with defaults, downgrade in asset classification and attendant provisioning.

Referring to a condition in RBI’s “Prudential Framework for Resolution of Stressed Assets”, which allows an asset to be classified as ‘standard’ if a change in ownership is implemented under the framework, a senior banker said: “Now at this point of time, management change is impossible as there is no one to buy assets. The value of the assets will get destroyed with the passage of time.

“If the existing promoter’s intentions are good and there is nothing adverse against him/her, then banks should be allowed to restructure such accounts without a downgrade in asset classification.”

In view of the possibility of businesses get tingback on track, bankers feel their irregular/no loan repayment could be condoned temporarily by relaxing the NPA recognition norm to 180 days from 90 days. A loan or an advance becomes an NPA when interest and/ or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan; and the account remains ‘out of order’ for more than 90 days, in respect of an Overdraft/Cash Credit.

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