Mumbai: In a bid to curb bad loans and main capital adequacy of banks the Reserve Bank of India has said that banks will have to maintain a higher provision of 10 per cent of all the accounts which have availed the moratorium on loan repayment till June 2020 as the 90-day norm will also be excluded from the moratorium period.
Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced that 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 be excluded from the moratorium period, thereby making there would an asset classification standstill for all such accounts from March 1, 2020 to May 31, 2020.
He also said that NBFCs have flexibility under the prescribed accounting standards to consider such relief to their borrowers.
Noting that that the central bank is cognizant of the risk build-up in banks’ balance sheets on account of firm-level stress and delays in recoveries, Das said: “With the objective of ensuring that banks maintain sufficient buffers and remain adequately provisioned to meet future challenges, they will have to maintain higher provision of 10 per cent on all such accounts under the standstill, spread over two quarters, i.e., March, 2020 and June, 2020.”
Experts have hailed the move and said that it would both curb NPAs and ensure adequate liquidity with the banks.
ASSOCHAM Secretary General, Deepak Sood said: “The fact that the NPA re-classification norms giving more time to the stressed loans to remain ‘standard’ are accompanied by the need for higher provisioning by banks shows the prudence path followed by the RBI.
Higher provisioning would provide a long term stability and higher protection to the banks, he added.
“After all, the banks are front-line warriors of the businesses as doctors and health workers are to the human beings.”
These provisions can be adjusted later on against the provisioning requirements for actual slippages in such accounts.
Sai Venkateshwaran, Partner and Head, CFO Advisory, KPMG in India said: “The RBI announcement on asset classification standstill should help in easing the loss provisioning for non-performing loans.”
