The Reserve Bank on Friday announced an asset classification standstill for three months to May 31 but asked banks to set aside additional money as provisions against loan accounts where the 90-day moratorium on repayments has been utilised.
On March 27, it had given term-loan borrowers the option of a moratorium on loan repayments for 90 days for the money due in March, April and May with the assurance that it will not affect credit scores.
Addressing the media in a video message on Friday, Das said that in accounts where moratoriums or deferments are being utilised, the asset recognition norms, under which an account is classified as a non performing asset (NPA) after 90 days of non-payment, will not apply.
"It has been decided 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 exclude the moratorium period, i.e., there would be an asset classification standstill for all such accounts from March 1, 2020 to May 31, 2020," he said.
However, for such cases, the RBI asked banks to maintain a higher provision of 10 per cent spread over the March and June quarters with an assurance to adjust the provisions later.
Das explained that such a requirement of setting aside more money, which would typically dent profitability or hold up capital, is necessary from a safety perspective.
He said the decision has been taken "with the objective of ensuring that banks maintain sufficient buffers and remain adequately provisioned to meet future challenges".
More From This Section
"...we are cognizant of the risk build-up in banks' balance sheets on account of firm-level stress and delays in recoveries," the governor added.
Das said the 10 per cent provisions can be adjusted later on against the provisioning requirements for actual slippages in such accounts.
It can be noted that generally bank set aside a much lower amount as standard asset provisioning which differs as per the type of loan and is generally less than 1 per cent of the outstanding. When an asset is recognised as a NPA, they are required to increase the provisioning to over 15 per cent and keep taking it higher as per the movement in its resolution.
"Necessary clarity has been given that the moratorium period will not lead to a spurt in NPAs in the system and importantly, will allow the borrowers across retail, SME and corporates availing the moratorium to access additional funding from banks or NBFCs," Suman Chowdhury, the chief analytical officer at Acuite Ratings and Research, said.
He added that while this measure effectively means an extension of the NPA period from 90 days to 180 days, banks will have to provide extra through the increased provisioning.
Das also said that non bank lenders have flexibility under the prescribed accounting standards to consider such relief to their borrowers.
While the additional provisioning can be a dent to banks' performance, there were a host of positive measures for the lenders in the slew of announcements like a relaxation on liquidity coverage ratio.
The BSE's sectoral index bankex was up 5.12 per cent at 23,304.63.