coronavirus impact: Indian banks seek more time over bad loan classification

MUMBAI: Indian banks have asked the banking regulator to allow more time before labelling a loan as bad debt, and they sought longer deadlines to meet certain capital standards as the coronavirus pandemic derails businesses, sparking concern over the financial health of banks.

“We have asked for an extension of 90 days for classifying a loan as a Non-Performing Asset (NPA),” Sunil Mehta, the chief executive officer of the Indian Banks’ Association, an industry body representing Indian lenders, told Reuters.

According to the current norms, an account slips into the NPA category if repayment is delayed by 90 days.

The Association also asked the central bank to allow banks to extend the period of repayment of loans by six months for loans across categories spanning industry, agriculture and retail customers.

As the global COVID-19 outbreak derails businesses, the resolution of stressed assets is also likely to be affected. To tackle this, banks asked for another 180 days beyond the six-month window given to banks to resolve bad loan accounts, added Mehta.

The Reserve Bank of India had also asked banks to set aside an additional capital conservation buffer (CCB) by the end of this month. Lenders asked it for a one-year extension to that deadline.

At present, the CCB of banks stands at 1.875% of their core capital, which will be extended to 2.5% once the new norms kick in.

India has more than 200 confirmed coronavirus cases, with several hundred people in isolation. Maharashtra, the state that has recorded the highest number of cases in India, has closed all shops and offices except those providing essential services in certain cities.

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