India: Demonetisation Impact - RBI Eases Small Loan Repayment Norms

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Dec 2016
India, December, 29 2016 - The Reserve Bank of India (RBI) has relaxed the norms for bad loan classification for small borrowers, including farmers, who are reeling under the impact of demonetisation.

The RBI has said it will give small borrowers additional 30 days to repay, over and above the 60 days extended repayment period announced last month. This relief applies to dues payable between November 1 and December 31, 2016 — the period when demonetisation impacted small borrowers.

According to the RBI, the relief will be applicable to running working capital accounts (OD/CC) or crop loans where the sanctioned limit is Rs one crore or less and term loans for business purposes — secured or otherwise — where the sanctioned amount is Rs one crore or less on the books of any bank or any NBFC, including a microfinance company. This will include agriculture loans, the RBI said.

The RBI said it will permit all banks to defer the downgrade of an account that was standard as on November 1, 2016, but would have become NPA for any reason during the period November 1 to December 31, 2016, by 90 days from the date of such downgrade in these categories of accounts. The revised rules will give small borrowers another 90 days — over and above the existing 90 days period — for classification of an account as non-performing asset (NPA).

“Dues payable after January 1, 2017 will be covered by the extant instructions for the respective regulated entities,” the RBI said. Many small borrowers had approached the banks and the RBI for relief in view of the currency crunch and restrictions on withdrawal of cash from ATMs and banks. Further, demand for goods also came down after demonetisation and many units have either shut shop or are on the verge of closing down.

On December 26, the RBI had given additional 60 days for repayment incentive of 3 per cent interest subsidy to farmers who repay their crop loans due in Nov-Dec. The government has been implementing the Interest Subvention Scheme since 2006-07. As per the scheme for the year 2016-17 besides subvention of 2 per cent per annum, an additional interest subvention of 3 per cent is also provided to prompt payee farmers from the date of disbursement of the crop loan.

The RBI said it will permit all banks to defer the downgrade of an account that was standard as on November 1, 2016, but would have become NPA for any reason during the period November 1 to December 31, 2016, by 90 days from the date of such downgrade in these categories of accounts. The revised rules will give small borrowers another 90 days — over and above the existing 90 days period — for classification of an account as non-performing asset (NPA).

“Dues payable after January 1, 2017 will be covered by the extant instructions for the respective regulated entities,” the RBI said. Many small borrowers had approached the banks and the RBI for relief in view of the currency crunch and restrictions on withdrawal of cash from ATMs and banks. Further, demand for goods also came down after demonetisation and many units have either shut shop or are on the verge of closing down.

On December 26, the RBI had given additional 60 days for repayment incentive of 3 per cent interest subsidy to farmers who repay their crop loans due in Nov-Dec. The government has been implementing the Interest Subvention Scheme since 2006-07. As per the scheme for the year 2016-17 besides subvention of 2 per cent per annum, an additional interest subvention of 3 per cent is also provided to prompt payee farmers from the date of disbursement of the crop loan.



 

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