An Extra 60 Days Now To Repay Car, Home Loans Upto 1 Crore

The Reserve Bank of India on Monday relaxed rules for classifying bad loans for small borrowers, saying they may need more time to repay their loan dues after the government withdrew Rs 500 and Rs 1,000 notes.

Banks and other financiers will get an additional 60 days for recognising housing, car, farm and other loans up to one crore as substandard, the RBI said in a notification.

The relaxation will apply to dues payable between November 1 and December 31, it said.

The government's sudden decision earlier this month to pull high value banknotes took out 86 per cent of the money in circulation and in the cash crunch that has followed, the ability of many borrowers to pay EMIs has been affected.

With withdrawals being restricted per account, many loan borrowers have been unable to get dues on time from creditors, limiting their options to repay their loan dues.

Also, normal banking activities, including clearing of cheques, have been severely hampered after the government's announcement, with bankers having to first serve people who have been queuing up for a one-time exchange of old notes for new ones at bank counters.

"It is a welcome move by the RBI as many customers have expressed their inability to repay dues in time because of the ongoing demonetisation drive," said Harshil Mehta, CEO of housing finance company DHFL.

For many borrowers, EMIs are due in the first half of the month, so the relaxation will help keep the account standard even when payment is not received, Mr Mehta said. Also, neither will the credit score of borrowers be impacted negatively due to non-payment nor will financial institutions have to make additional provisions to classify an account as sub-standard account, he said.

The RBI said today's concession will apply to "term loans, whether business or personal, secured or otherwise, the original sanctioned amount whereof is Rs 1 crore or less, on the books of any bank or any NBFC, including NBFC (MFI). This shall include housing loans and agriculture loans."

It has stressed that this is only a short-term deferment of classifying a loan as substandard and will not result in loans being restructured.

Prime Minister Narendra Modi has promised that the cash crunch will ease in 50 days. People have till December 31 to deposit and exchange old notes.

(With PTI inputs)