Norms relating to the classification of bad loans have been eased, enabling stressed borrowers to tide themselves over the pandemic, which has crippled their cash flows.

The RBI move on Friday will also benefit banks as they will not see a rise in stressed assets or non-performing assets (NPAs) during the fourth quarter of 2019-20 or in the first quarter of this fiscal.

RBI governor Shaktikanta Das on Friday said the 90-day NPA norm will not include the 90-day period of moratorium granted in the monetary policy of March 27 (i.e from March 1, 2020 to May 31, 2020)

This effectively dilutes the NPA classification regime, freeing banks from worries about being swamped by a fresh stack of bad loans.

Under the current RBI norms, if a loan remains unpaid for more than 90 days, it is treated as an NPA. Banks will then have to make a minimum provision of 15 per cent for these bad assets.

The RBI had earlier come out with a framework to identify incipient stress in loan accounts. Banks have to categorise such cases in three buckets — SMA0 (loan default of 0-30 days) and SMA1 (31-60 days) and SMA2 (default of 60-90 days).

Friday’s relaxation from the RBI would mean that even if an account where moratorium has been taken is in overdue from March 1, it will be classified as NPA only in September if the dues continue to remain unpaid. Effectively, it means bad loans or NPA classification will now happen after 180 days.

This relaxation will benefit borrowers such as small and medium-sized enterprises and corporates availing themselves of the moratorium as they can access additional funding from the financial institutions because they will not be classified as NPA.

However, the central bank has tightened provisioning rules.

Das said lenders will have to make an additional provision of 10 per cent for those accounts who have chosen to take the moratorium.

A notification said lending institutions shall make general provisions of not less than

10 per cent of the total outstanding of such accounts and this will be done over two quarters.

For the quarter ended March 31 and June 30, they will have to make a provision of at least 5 per cent each.

RBI also extended the resolution plan period for stressed accounts by 90 days from the current 210 days.