How RBI has given another major relief to borrowers and lenders

The RBI Governor Shaktiknata Das Friday announced a 90-day extension for the resolution period for large stressed assets which have not been resolved within the 210 day deadline as per the central bank's June 7, 2019 order. Announcing a slew of liquidity and regulatory easing measures for financial institutions to tide over the coronavirus crisis, the RBI Governor also said that NPA classification will exclude the moratorium period.

Das noted that under RBI`s prudential framework of resolution of stressed assets dated June 7, 2019, in the case of large accounts under default, Scheduled Commercial Banks, AIFIs, NBFC-ND-SIs and NBFC-D are currently 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.

"Recognizing the challenges to resolution of stressed assets in the current volatile environment, it has been decided that the period for resolution plan shall be extended by 90 days," Das said.

This comes after the Central Bank on March 27 had permitted lending institutions to grant a moratorium of three months on payment of current dues falling between March 1 and May 31, 2020.

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"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," said the central bank governor.

How lenders and borrowers will benefit?

The RBI announcement today is constructive, commendable and is in favour to support the financial system and at the same time the Indian real estate sector, explained Deo Shankar Tripathi, MD & CEO of Aadhar Housing Finance.

“Prevailing confusion on asset classification of loans has been put to an end with the announcement. Now standard classification status of loans as of 1st March will exclude the 90 days moratorium period from 1st March to 31st May, which means status of loans shall remain at a standstill till 31st May. This comes as a big relief to borrowers and lenders,” he said.

Tripathi also hailed the move to reduce the reverse repo rate.

“Reverse repo rate has been reduced from 4% to 3.75% to encourage banks to lend instead of parking funds with RBI. NBFCs and the commercial real estate sector both have been given huge relaxation of extending one year, over above one year already given in DCCO without down gradation of account. This comes as a great aid in asset classification of NBFC loans to the commercial real estate sector,” he said.