RBI GIVES NPA CLASSIFICATION REPRIEVE TO ACCOUNTS UNDER 3 MONTH MORATORIUM

The Reserve Bank of India has decided to provide an asset classification standstill for standard accounts that avail a moratorum between 1 March and 31May,said governor Shakikanta Das on Friday.The effectively means that the bad loan classification period change ton 180 days for all such accounts from 90 days.Banks classify accounts as standard,substandarad and doutful based on the number of days that payments are delayed:Borrowers turn non-performing only after 90 days of overdue and are classified as standard prior to that,notwithstanding any delay in repayments Addressing the media  through video conferencing on Friday,Das said, the Central Bank recognises that the onset of COVID-19 has also exacerbated the challenges for borrowers even to honour repayment commitments due on or before 29 febuary. "There will be an asset classification standstill for all such accounts from 1 March to 31 May 2020" Das said adding that these guidelines also apply to non-banking financial companies after their boards approved policies as in this regard.However ,to ensure that the banking system has sufficient buffers against future asset classification woes the central bank has mandated additional provisions on all these moyatorium accounts.

"With the objectives that banks maintain sufficient buffers and remain adequately provisional to meet future challenges they will have to maintain a higher provision of  10%n on all such accounts under the standstill spread over two quatrters, March 2020 and June 2020.These provisions can be adjusted later on against the provisioning requiements for actual slippage in such acconts."said Das."The  exclusion of the moratorium period in evaluating NPA's / asset classification will also help the NBFC immensely.Overall,the 25 BPS  in the reverse repo rate  and the oyher liquidity injection measures are a much needed positive move,"Rashmi Saluja ,Executive Chairperson-Religare Enterprises Limited, said."The 90  day extension in NPA reckonong for stressed standard assets as on 1 March effectively postpones NPA  classification for accoun td that were slipping to NPA between March and May.