Covid-19: Lenders seek deferment in loan repayment, reclassification of NPA

The Indian Banks’ Association (IBA) is set to demand a host of relaxations towards repaying loans in a bid to tide over the crisis, including an extension of 90 days in classifying accounts as non-performing assets (NPA) and deferring the installment of term loans.

The IBA’s managing committee met on Friday and has decided to put up five set of demands to the central government and the Reserve Bank of India (RBI) to help the and retail and corporate borrowers alike, IBA chief executive officer Sunil Mehta told Business Standard over phone.

“We are asking for a 90-day extension of timeline for slippage of a running account – both cash credit and overdraft – into NPA,” Mehta said. If borrowers is unable to repay loans within 90 days of the due date, their loan account is classified as NPA by banks. If the IBA’s recommendations are accepted, the NPA tag will take 6 months.

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During the intervening period, the accounts will also not be classified as Special Mention Accounts (SMA)-1 or SMA-2, he said. SMA-1 are those in which loan repayments have been overdue for a period between 31 and 60 days, while SMA 2 accounts are the ones with a delay of 61-90 days.

“We will demand deferment of up to 6 months in term-loan installments with a consequential shift in repayment period by 6 months. This will be left to the discretion of bankers. If lenders feel that half of the installment amount can be deferred, as the payment capacity of the borrower has weakened, additional six months can be given,” Mehta, who was earlier the CEO of Punjab National Bank, said.

He added that the industries have complained about losing their capacity to earn even though the “full blown impact” of the is yet to be seen. “Real estate players are complaining about value of property diminishing while other industry have complained about disruption in trade being a hindrance to their business,” he added.

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The pandemic has impacted several industries in India, especially those in the services sector including aviation and transportation sector. The import-dependent sectors have also taken a hit due to a disruption in the global supply chain.

The IBA will also seek an extension of window for resolving stressed assets from the Reserve Bank of India. According to the RBI’s June circular, banks have to start resolution process within 30 days of default, followed by 180 days for resolution of the stressed account. “We will seek an additional six months window, especially in those cases where resolution is possible and got impacted due to the pandemic,” Mehta added.

Additionally, the IBA will seek from the RBI a deferment of one year for maintaining the capital conservation buffer (CCB) and a reduction of one per cent in cash reserve ratio. The banks are supposed to maintain the CCB at 2.5 per cent by the end of this financial year and have to make an additional provisioning towards it.

Mehta also said that the IBA will seek forbearances on following timelines, such as those requiring reporting cases of fraud as the banks will be working with a reduced staff in the coming days.