NEW DELHI: With a rise in loan defaults apparent on the wake of the coronavirus outbreak and the subsequent lockdown in the country, the Central government is considering relaxation of NPA norms for the banks, in consultation with the Reserve Bank of India (RBI).
An account is classified as a Non-Performing Asset (NPA) if the default is beyond 90 days. With the current crisis, a large number of accounts will fall in this category in the next two quarters.
According to an internal assessment of industry based on RBI data, the total exposure of Indian banks to coronavirus-hit sectors such as transportation, aviation and hospitality, trades and MSMEs is in excess of Rs 11 lakh crore.
"There is a discussion going on regarding the relaxation of NPA norms for the banks, sensing a large number of payment defaults due to the coronavirus outbreak. The finance ministry has already got representation from banks for relaxing the NPA provisioning by another 90 days. We are discussing the matter with the RBI. Clear guidelines in this regards will be issued soon," said a senior finance ministry official.
The official added that banks, during a series of meetings with the finance minister and the Prime Minister, have demanded at least 90 days deferment in NPA classification. On Tuesday, Finance Minister Nirmala Sitharaman, while relaxing compliances norms for the businesses, had also hinted that the government is monitoring concerns over NPAs.
"The situation is worse than anticipated and no one knows where it will stop. The defaults will certainly keep the banking sector under strain and its impact will be felt in next two quarters, at least. If the norms are not relaxed, a huge number of accounts will turn NPAs and banks will not be able to lend to businesses, making recovery difficult," said a banker from Bank of Baroda.
In its representation seeking a financial package to tide over the coronavirus-induced crisis, the Confederation of Indian Industries had demanded that the Centre should change the definition of NPA recognition from 90 days to 180 till September 30.