RBI Relaxed NPA Norms for MSME in its Monetary Policy

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The Reserve Bank of India on Feb 7, 2018 relaxed norms for Non-Performing Asset (NPA) Recognition criterion for Banks and Non Banking Financial Companies (NBFCs)  and it gives additional time for loan repayment to (MSMEs) affected by the Goods and Service Tax (GST).

This facility shall be available only to those entities whose total loans are less than Rs.25 Crore.

“Amounts overdue as on September 1, 2017 and payments due between September 1, 2017 and January 31, 2018 (will) be allowed by Banks and NBFCs to be paid not later than 180 days from their original due date, without a downgrade in asset classification,” the RBI said in a statement.

Presently, Banks and NBFCs in India generally classify a loan account as Non-Performing Asset (NPA) based on 90 day and 120 day delinquency norms, respectively.

As a measure of support to these entities in their transition to a formalized business environment, it has been decided that the exposure of Banks and NBFCs to a borrower classified as micro, small and medium enterprise under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, shall continue to be classified as a standard asset in the books of Banks and NBFCs subject to the following conditions:

(i) The borrower is registered under the GST regime as on January 31, 2018.

(ii) The aggregate exposure, including non-fund based facilities, of Banks and NBFCs, to the borrower does not exceed ` 250 million as on January 31, 2018.

(iii) The borrower’s account was standard as on August 31, 2017.

(iv) The amount from the borrower overdue as on September 1, 2017 and payments from the borrower due between September 1, 2017 and January 31, 2018 are paid not later than 180 days from their respective original due dates.

(v) A provision of 5% shall be made by the Banks/NBFCs against the exposures not classified as NPA in terms of this circular. The provision in respect of the account may be reversed as and when no amount is overdue beyond the 90/1201 day norm, as the case may be.

(vi)  The additional time is being provided for the purpose of asset classification only and not for income recognition, i.e., if the interest from the borrower is overdue for more than 90/120 days, the same shall not be recognized on accrual basis.

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