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RBI extends grace period for NPA classification by 30 days

29 Dec 2016 Evaluate

In order to provide relief to people hit by demonetization, the Reserve Bank of India (RBI) has extended the grace period for banks, non-banking finance companies (NBFC) and microfinance companies to classify bad loans by 30 days in the case of agriculture and term loans of up to Rs 1 crore. As per RBI notification, it has been decided to provide 30 days, in addition to the 60 days provided on November 21, thus, borrowers together get 90 days breather from getting the account classified under non-performing asset (NPA) category.

According to the RBI, the relief will be applicable to running working capital accounts (OD/CC) or crop loans where the sanctioned limit is Rs 1 crore or less and term loans for business purposes - secured or otherwise - where the sanctioned amount is Rs 1 crore or less on the books of any bank or any NBFC, including a microfinance company. This will also include agriculture loans. Further, dues payable after January 1, 2017 will be covered by the instructions for the respective entities.

Recently, the RBI had given additional 60 days for repayment incentive of 3 percent interest subsidy to farmers who repay their crop loans due in Nov-Dec. The surprise announcement made by Prime Minister Narendra Modi on November 8, to scrap Rs 500 and 1,000 notes resulted in a cash crunch in the market leading to slowdown in business. As a result, the repayment capacity of the borrowers were impacted and there was fear of loan default rising.

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