Covid-19 relief: Staggered 180-day bad-loan breather on cards for banks

The Reserve Bank of India (RBI) and the finance ministry may take up the issue of relaxation in the delinquency period for the classification of banks’ non-performing assets (NPAs) to 180 days, from the current 90 days.

The rescheduling of accounts classified as overdue, stressed or NPAs as on December 2019 without being downgraded, and fresh funding (with a minimum repayment period of 18 to 24 months) is to be considered. This may include going easy on the insistence for additional collateral as a pre-condition by banks.

The NPA delinquency relaxation to 180 days “may be heavily qualified to prevent its abuse”, said a source. The staggered NPA relaxation glide path can be expected to have ‘start-stop dates’, which will finally settle down to the current 90-day timeline by the close of 2020-21.

The interest accrued, but not received after January 1, 2020, may be allowed to be repaid in six monthly instalments from October 1 to end-March 2021. This ties in with the possibility of the delinquency period for classification of NPAs being extended to 180 days.

A key concern is that the three-month moratorium on term loans by the central bank, and its linkage to the account being ‘regular’ to avail of the same, may lead to a situation wherein weaker borrowers come under even more stress.

“These borrowers may default and get downgraded as NPAs under the current norms due to their inability to service the interest component on which there is no breather,” said a source.

“This is especially since sales in the June 2020 quarter will be extremely poor. Their ability to get fresh financing will also be under a cloud,” he added.

The amount that banks can avail of by way of refinance from the National Bank for Agriculture and Rural Development, National Housing Bank, and the Small Industries Development Bank of India is also to be looked at. A reference may be made to International Accounting Standard 10 pertaining to ‘events after the reporting period’. Its applicability to the Indian context is said to have been examined. Receipts, payments, recoveries, or provisions made or received up to September 30, 2020, could be considered while finalising the accounts for 2019-20 (FY20). Or an additional six months will be captured in banks’ accounts for FY20. It has been gathered that ‘talks with the Institute of Chartered Accountants of India (ICAI) have been initiated on this aspect’.

The additional provisioning norm under the central bank’s June 7 circular and incorporation of a three-month breather in its key trigger points may also be warranted. The additional provisioning banks have to comply with under the June 7 circular is as follows — 20 per cent after 180 days from end of the review period; and 15 per cent after a year; or a total additional provisioning of 35 per cent.

It was given to understand that the central bank’s insistence that the three-month moratorium ‘shall be contingent on lending institutions satisfying themselves that the same is necessitated on account of the economic fallout from Covid-19’, has been flagged off to both its senior decision-making levels and to North Block. Borrowers, especially micro, small and medium enterprises, service the interest just in time before the 90-day NPA norm kicks in. It was suggested to the RBI that it could have said the account should have been ‘standard’ — that is, it is not an NPA or a special mention account — rather than insist it should be ‘regular’.