In view of cash crunch being faced by borrowers, the RBI has provided additional 60 days for repayment of housing, car, farm and other loans worth up to Rs 1 crore. RBI said in a notification, the announcement is applicable to the ongoing loans payable between the duration of November 1 and December 31.
It states that “… it has been decided to provide an additional 60 days beyond what is applicable for the concerned regulated entity for recognition of a loan account as substandard.”
Aforementioned relaxation is available to entities running, working capital accounts with any bank with the sanctioned limit of Rs 1 crore or less.
Term loans, whether it is a business or personal, secured or otherwise, the original sanctioned amount of Rs 1 crore or less on papers or on the books of any bank or any NBFC, including NBFC (MFI) would also get benefit of this relaxation. It said that this will also include agriculture loans and housing loans.
The Supreme Court further said that all regulated financial services firms should note that this is a short-term deferment of classification as substandard due to delay in payment of dues arising during the period specified above and does not result in restructuring of the loans.
“Dues payable before November 1 and after December 31, 2016, will be covered by the extant instruction for the respective regulated entity with regard to recognition of NPAs,” it said.
Many experts said that it would be a relief for both the bankers and the borrowers to overcome the temporary cash crunch situation. The demonetizing higher value currency note affected all normal banking activities that include clearing of cheques.
On this, Harshil Mehta, Chief Executive Officer, DHFL said, “It is a welcome move by the RBI as many customers have expressed their inability to repay dues in time because of ongoing demonetisation drive.”
He also added that EMIs are due in the first half of the month for many of them, so the relaxation will help keep account standard even when the payment is not received. Neither borrowers’ credit score is impacted negatively due to non-payment nor financial institutions have to make additional provisions for sub-standard account.