The Reserve Bank of India (RBI) on November 21 said small borrowers, who have been facing the brunt of demonetisation, would get an additional 60 days to repay their credit, including agriculture and housing loans.

Borrowers with loans up to Rs 1 crore from banks and finance companies would be eligible for this relaxation, RBI said.

The central bank has granted similar relaxation for bank loans to non-banking financial companies (NBFCs) and housing finance companies (HFCs), as well as primary agriculture cooperatives. The loans by state co-operative banks to district central cooperative banks would also enjoy same relaxation.

Under normal circumstances, loans which remain unpaid for 90 days are treated as non-performing assets (NPAs). The first category in NPA is dubbed as sub-standard asset.

This relief applies to dues payable between November 1 and December 31.

RBI said it had received pleas saying borrowers may need more time to repay loan dues consequent to withdrawal of Rs 500 and Rs 1,000 notes.

Dues payable before November 1 and after December 31 would be covered under existing rules for recognition of a loan as a non-performing asset.

Rating agency CRISIL said this relief would provide some respite to the non-banks in managing asset quality in the interim period. However, if the disruption prolongs beyond two months, asset quality pressures could manifest.

Seconding CRISIL assessment, Parag Jariwala, VP, institutional research, banking and financial services, Religare Capital Markets, said the move is positive for non-banking finance companies (NBFCs). However, stakeholders were expecting slightly higher relaxation.

The relaxation of more than 90 days instead of 60 days as many industries will take time to get out of the mess. The relaxation could have been bit longer like for six to 12 months instead the RBI has given only one-time relaxation, he said.

Running working capital accounts (over draft and cash credit) and crop loans, with a sanctioned limit of up to Rs 1 crore or less, would also be eligible for this relaxation.

Further, term loans, whether business or personal and whether they are secured or otherwise, where the original sanctioned amount is up to Rs 1 crore on the books of the concerned bank, including district cooperative banks, finance companies and micro finance institutions, would also be covered under the deferment.

Harshil Mehta, CEO, DHFL said the relaxation in norms will give much needed comfort to low and middle income segment from tier-II and -III towns by allowing them additional 60 days to pay their loan dues.

National Housing Bank should also provide similar policy guidelines for housing finance companies which have been serving Low and Middle Income segment to enable them access to home ownership, Mehta added.

Source: Business Standard