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RBI Extends Repayment Relief Window For Small Borrowers By 30 Days

RBI extends relief to small borrowers in the form of a further 30-day relaxation. 



The Reserve Bank of India (RBI) building stands in Kolkata (Photographer: Brent Lewin/Bloomberg)
The Reserve Bank of India (RBI) building stands in Kolkata (Photographer: Brent Lewin/Bloomberg)

The Reserve Bank of India, taking cognisance of the continuing shortage of currency, has extended the relaxation on payment of dues on certain categories of loans by another 30 days, according to a notification on the central bank’s website.

The RBI had, on November 21, provided relief to small borrowers by offering them an additional 60 days to make good on their dues. The measure is aimed at preventing a spike in bad loans on account of the government’s decision to withdraw Rs 500 and Rs 1000 notes, which was announced on November 8, and resulted in the scrapping of 86 percent of the currency in circulation.

As earlier, the relief is provided to running working capital accounts, where the sanctioned limit is Rs 1 crore. Also, term loans for business purposes, the sanctioned limit for which is up to Rs 1 crore, can avail of the extended timeline. Loans by non banking finance companies (NBFCs) and micro finance institutions (MFIs) will also get this benefit, the RBI said.

How The Relaxation Works

Borrowers, which fit the requisite criteria of the central bank, will get an additional 90 days to repay their dues.

For the banking sector, a loan gets classified as a non performing asset if either the interest or principal has not been paid for a period of 90 days. Following this dispensation, a loan in the stated categories will be termed as a non performing asset if the dues remain unpaid for 180 days.

The special dispensation only applies to dues payable between November 1 and December 31, the RBI said.

A separate mention has been made for loan accounts that would have become non performing assets between November 1 and December 31. For these too, a relaxation of 90 days has been provided by the RBI.

The regulator has stated that loans that are currently non performing assets will not get any special dispensation.

The additional time given... shall only apply to defer the classification of an existing standard asset as substandard and not for delaying the migration of an account across sub-categories of NPA (non performing asset). 
RBI notification 

“As of now, taking into account the cash crunch, this was required,” said Siddharth Purohit, banking and finance analyst at Angel Broking. “There are a lot of small and medium enterprises that are under severe pressure.”

As of last week, banks had dispensed a little under Rs 6 lakh crore in new notes, a fraction of the amount that was pulled out of the system. Arundhati Bhattacharya, chairman of State Bank of India told BloombergQuint on Friday that it will take another two months for normalcy to be restored with respect to the availability of currency. Bhattacharya also said that some hand-holding is needed for small and medium enterprises during this time of stress.

“It seems that the RBI has taken the situation into account, and there could be another extension at a later date if the need arises. There are some sectors that will bounce back quickly once the cash situation is resolved, but there are others that will climb back more slowly,” Purohit said.