Loans up to Rs 25 cr will now be classified as NPAs after 180 days

The Reserve Bank of India (RBI) today said it would allow up to 180 days to make loan repayments to GST-registered MSMEs with aggregate standard exposure of up to Rs 25 crore, and amounts overdue as on September last year.

MSMEs were so far given 90 days or 120 days by banks and NBFCs, respectively, for repayment before their account got classified as a non-performing asset (NPA). The RBI has raised this period to 180 days.

The formalisation of business through registration under Goods and Services Tax (GST) adversely impacted cash flows of the smaller entities during the transition phase. Consequently, they faced difficulties in meeting their repayment obligations to banks and non-banking financial companies (NBFCs).

"As a measure to support their transition to a formalised business environment, it has been decided that for the GST-registered Micro, Small and Medium Enterprises (MSMEs) which were standard as on August 31, 2017 and for which the aggregate exposure of banks and NBFCs does not exceed Rs.250 million as on January 31, 2018, the amounts overdue as on September 1, 2017 and payments due between September 1, 2017 and January 31, 2018, be allowed by banks and NBFCs to be paid not later than 180 days from their original due date, without a downgrade in asset classification," RBI said along with the monetary policy announcement today.

 The exposure of an MSME borrower will be classified as standard in the books of the banks and NBFCs, subject to following conditions:

• The borrower is registered under the GST regime as on January 31, 2018.


• The aggregate exposure, including non-fund based facilities, of banks and NBFCs, to the borrower does not exceed ₹ 250 million (Rs 25 crore) as on January 31, 2018.


• The borrower’s account was standard as on August 31, 2017


• The amount from the borrower overdue as on September 1, 2017 and payments from the borrower due between September 1, 2017 and January 31, 2018 are paid not later than 180 days from their respective original due dates.


• A provision of 5 percent shall be made by the banks/NBFCs against the exposures not classified as NPA in terms of this circular. The provision in respect of the account may be reversed as and when no amount is overdue beyond the 90/120 day norm, as the case may be.The additional time is being provided for the purpose of asset classification only and not for income recognition, i.e., if the interest from the borrower is overdue for more than 90/120 days, the same shall not be recognised on accrual basis.

Additionally, the central bank has also removed caps on the loan amount of Rs 5 crore and Rs 10 crore per borrower to MSMEs under priority sector lending (PSL).

"In the light of feedback received from various stakeholders and in line with the increasing importance of services sector in our economy, it has been decided to remove the currently applicable loan limits of ₹50 million and ₹100 million per borrower to Micro, Small and Medium Enterprises (Services) respectively, for classification under priority sector," it said.

Accordingly, all bank loans to MSMEs, engaged in providing or rendering of services as defined in terms of investment in equipment under Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, shall qualify under priority sector without any credit caps.