Reserve Bank tries to reduce NPA burden for lenders in coronavirus crisis

The Reserve Bank of India (RBI) on Friday announced additional set of regulatory measures to reduce the burden of debt servicing due to disruptions caused by the coronavirus (Covid-19) pandemic, including an asset classification standstill for accounts that avail a moratorium between March 1 and May 31.
Such accounts will, therefore, be classified as non-performing assets from 180 days of overdue, rather than the current norm of 90 days, according to a set of measures announced by RBI Governor Shaktikanta Das on Friday.
“Economic activity has come to a standstill during the period of the lockdown, with consequential lingering effects which have unambiguously affected the cash flows of households and businesses,” the RBI said.
On March 27, the RBI had permitted lending institutions in India to grant a moratorium of three months on payment of current dues falling between March 1 and May 31, 2020.
It is recognised that the onset of Covid-19 has also exacerbated the challenges for such borrowers even to honour their commitments fallen due on or before February 29, 2020 in standard accounts, the RBI governor said.
“Therefore, it has been decided that 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,” the RBI said.
But the banks will have to make additional provisioning for such accounts to ensure banks maintain sufficient buffers and remain adequately prepared to take a hit in case the loans go bad. “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. These provisions can be adjusted later on against the provisioning requirements for actual slippages in such accounts,” the RBI said.

The RBI will further issue a detailed circular revising its framework on resolution of stressed assets dated June 7, 2019. The RBI has decided to grant additional 90 days for banks to come up with resolution plan. Under the existing guidelines, all lenders are required to hold an additional provision of 20 per cent if a resolution plan has not been implemented within 210 days from the date of such default.