NPA classification time may extend
Move to increase 90-day window to 120 days
The Centre is in talks with the Reserve Bank of India (RBI) and other stakeholders to consider the possibility of easing the norms for non-performing assets (NPAS), or bad loans, by extending the classification period to at least 120 days. At present, a loan account turns into an NPA if it is not serviced for 90 days.
The proposal comes in the wake of mounting bad loans, particularly of state-owned lenders, due to disruptions caused by the Covid-19 pandemic. According to the RBI, the NPA ratio of all commercial BUDGET banks may increase 2021-22 from 8.5 per cent in March 2020 to 12.5 per cent in March 2021.
The government is of the view that the time given under the existing norms is too short for assets to be classified as bad loans.
“Various possibilities have been explored to address the bad loan issue, including the recognition of NPAS. One option is to extend the time period of NPA classification as it is observed that the time given to the borrowers to repay the dues should be increased up to at least 120 days,” said a senior government official. The RBI had given temporary relief by providing an asset classification standstill for standard accounts that availed of a moratorium between March 1 and May 31. This effectively meant that the bad loan classification period changed to 180 days for all such accounts from 90 days.
But in a recent report, the regulator said that banks would face a challenging time in 202122, as the policy support is rolled back. Even though the government is consulting all stakeholders, sources said the final call will be taken by the RBI. Extending the NPA classification period may require certain amendments to the Banking Regulation Act.
Currently, banks have three internal benchmarks before classifying a loan as an NPA. Accounts which are overdue for 1-30 days are classified as special mention account-0 (SMA0), those that are overdue for 31-60 days are classified as SMA-1, and those overdue for 61-90 days are classified as SMA-2. Any account overdue for more than 90 days is recognised as an NPA.