The Reserve Bank of India on Monday relaxed rules for classifying bad loans for small borrowers and provided additional 60 days for the repayment of housing, car, farm and other loans worth up to Rs 1 crore.
The relaxation will apply to dues payable between November 1 and December 31, and is available to entities running working capital accounts with any bank with the sanctioned limit of Rs 1 crore or less, the RBI said in a notification.
Prime Minister Narendra Modi’s surprise announcement to scrap Rs 500 and Rs 1,000 notes on November 8 has sparked chaos and confusion across the country, with millions of consumers queued outside banks and ATMs to change a limited number of old notes for new ones or withdraw cash.
“... it has been decided to provide an additional 60 days beyond what is applicable for the concerned regulated entity for recognition of a loan account as substandard,” the bank said.
The facility will be applicable on term loans -- business, personal, secured or otherwise --- where the original sanctioned amount is Rs 1 crore or less “on the books of any bank or any NBFC, including NBFC (MFI)”, the RBI said.
This will also include housing loans and agriculture loans.
The apex bank also said all regulated financial institutions should note that this is a short-term deferment of classification as substandard due to delay in payment of dues arising during the period specified above and does not result in restructuring of the loans.
“Dues payable before November 1 and after December 31, 2016, will be covered by the extant instruction for the respective regulated entity with regard to recognition of NPAs,” it said.
The demonetisation of higher value currency notes has affected normal banking activities including clearing of cheques. Besides, borrowers are unable to get payments from their creditors due to various restrictions including cash withdrawal limit of Rs 24,000 per week, limiting their options to repay their dues.
DHFL chief executive officer Harshil Mehta said, “It is a welcome move by the RBI as many customers have expressed their inability to repay dues in time because of ongoing demonetisation drive.”
For many of them, EMIs are due in the first half of the month, so the relaxation will help keep account standard even when the payment is not received, he said.
Neither borrowers’ credit score is impacted negatively due to non-payment nor financial institutions have to make additional provisions for sub-standard account, he added.
Ratna Vishwanathan, CEO, MFIN (MFI Network), pointed out that many repayments were affected as more than 85% of their business was in cash.
MFIs and other smaller NBFCs, which do business largely in cash, cannot accept demonetised notes as they are not banks.
Chandrashekhar Ghosh, the CEO of Bandhan Bank (an MFI-turned-bank), pointed out that MFIs were estimated to have made a loss of Rs 1,500-Rs 1,700 crore in 10 days due to the non-availability of cash with their borrowers.
Meanwhile, the RBI also said small businesses can withdraw up to Rs 50,000 in cash every week from their overdraft and cash-credit accounts that have been active for at least three months. This facility was earlier allowed only for current accounts of traders.
(With agency inputs)
For more on the government’s demonetisation move, click here.