Executive Summary:
This Reserve Bank of India (RBI) circular addresses asset classification and income recognition following the expiry of the Covid-19 regulatory package, in line with the Supreme Court's judgement. It mandates lending institutions to refund/adjust interest on interest charged during the moratorium period (March 1, 2020 to August 31, 2020). It also clarifies the asset classification norms during and after the moratorium period.
Key Points / Main Content:
Refund/Adjustment of Interest on Interest:
* Lending institutions must implement a Board-approved policy for refunding/adjusting interest on interest charged during the moratorium period (March 1, 2020 to August 31, 2020).
* The Indian Banks Association (IBA) will finalize the methodology for calculating the refund/adjustment amount, to be adopted by all lending institutions.
* These reliefs apply to all borrowers, including those who availed of working capital facilities, irrespective of whether the moratorium was fully, partially, or not availed.
* Lending institutions must disclose the aggregate amount to be refunded/adjusted in their financial statements for the year ending March 31, 2021.
Asset Classification:
* For accounts not granted a moratorium, asset classification follows the standard IRAC norms as of July 1, 2015, or other relevant instructions.
* For accounts granted a moratorium, asset classification from March 1, 2020, to August 31, 2020, is governed by circulars DOR.No.BP.BC.63/21.04.048/2019-20 and DOR.No.BP.BC.71/21.04.048/2019-20.
* From September 1, 2020, asset classification for moratorium accounts is governed by applicable IRAC norms.
Impact Analysis:
Lending Institutions (Commercial Banks, Small Finance Banks, Local Area Banks, Regional Rural Banks, Primary Urban Cooperative Banks, State Cooperative Banks, District Central Cooperative Banks, All-India Financial Institutions, and Non-Banking Financial Companies including Housing Finance Companies):
Impact: Required to implement the policy for refund/adjustment of interest on interest and adhere to the clarified asset classification norms.
Action Required: Establish a Board-approved policy for refund/adjustment, adopt the IBA methodology, disclose the aggregate refund/adjustment amount in financial statements, and ensure asset classification aligns with the specified guidelines.
Borrowers:
Impact: Eligible to receive refunds/adjustments for interest on interest charged during the moratorium period. The impact varies depending on whether they fully, partially or did not avail of the moratorium.
Action Required: No direct action specified, but should be aware of the policy and expect refunds/adjustments from lending institutions.
Key Entities Referenced
Reserve Bank of India: The central bank of India, the primary issuer of this notification.
Small Scale Industrial Manufacturers Association vs UOI Ors.: A legal case in the Hon'ble Supreme Court of India related to interest during the Covid-19 moratorium period.
Supreme Court of India: The highest judicial body of India, which delivered a judgement relevant to this notification.
Indian Banks Association: An association of banks in India tasked with finalizing the methodology for calculating refunds/adjustments of interest.
Covid-19 Regulatory Package: A set of regulatory measures implemented in response to the Covid-19 pandemic, providing relief to borrowers.
Commercial Banks: A type of bank regulated by the Reserve Bank of India.
Non-Banking Financial Companies: Financial institutions that provide banking services without meeting the legal definition of a bank.
IRAC Norms: Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances dated July 1, 2015
भारतीय �रज़व र् ब�क
------------------------------------- RESERVE BANK OF INDIA -----------------------------------
www.rbi.org.in
RBI/2021-22/17
DOR.STR.REC.4/21.04.048/2021-22 April 7, 2021
All Commercial Banks (including Small Finance Banks, Local Area Banks and
Regional Rural Banks)
All Primary (Urban) Co-operative Banks/State Co-operative Banks/ District Central
Co-operative Banks
All All-India Financial Institutions
All Non-Banking Financial Companies (including Housing Finance Companies)
Madam / Dear Sir,
Asset Classification and Income Recognition following the expiry of Covid-19
regulatory package
The Hon’ble Supreme Court of India has pronounced its judgement in the matter of
Small Scale Industrial Manufacturers Association vs UOI & Ors. and other connected
matters on March 23, 2021. In this connection, it is advised hereunder:
I. Refund/adjustment of ‘interest on interest’
2. All lending institutions1 shall immediately put in place a Board-approved policy to
refund/adjust the ‘interest on interest’ charged to the borrowers during the moratorium
period, i.e. March 1, 2020 to August 31, 2020 in conformity with the above judgement.
In order to ensure that the above judgement is implemented uniformly in letter and
spirit by all lending institutions, methodology for calculation of the amount to be
refunded/adjusted for different facilities shall be finalised by the Indian Banks
Association (IBA) in consultation with other industry participants/bodies, which shall
be adopted by all lending institutions.
3. The above reliefs shall be applicable to all borrowers, including those who had
availed of working capital facilities during the moratorium period, irrespective of
whether moratorium had been fully or partially availed, or not availed, in terms of the
circulars DOR.No.BP.BC.47/21.04.048/2019-20 dated March 27, 2020 and
1 Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks),
Primary (Urban) Co-operative Banks/State Co-operative Banks/ District Central Co-operative Banks,
All-India Financial Institutions, and Non-Banking Financial Companies (including Housing Finance
Companies)
1DOR.No.BP.BC.71/21.04.048/2019-20 dated May 23, 2020 (“Covid-19 Regulatory
Package”).
4. Lending institutions shall disclose the aggregate amount to be refunded/adjusted in
respect of their borrowers based on the above reliefs in their financial statements for
the year ending March 31, 2021.
II. Asset Classification
5. Asset classification of borrower accounts by all lending institutions following the
above judgment shall continue to be governed by the extant instructions as clarified
below.
(i) In respect of accounts which were not granted any moratorium in terms of the
Covid19 Regulatory Package, asset classification shall be as per the criteria
laid out in the Master Circular - Prudential norms on Income Recognition, Asset
Classification and Provisioning pertaining to Advances dated July 1, 2015 or
other relevant instructions as applicable to the specific category of lending
institutions (IRAC Norms).
(ii) In respect of accounts which were granted moratorium in terms of the Covid19
Regulatory Package, the asset classification for the period from March 1, 2020
to August 31, 2020 shall be governed in terms of the circular
DOR.No.BP.BC.63/21.04.048/2019-20 dated April 17, 2020, read with circular
DOR.No.BP.BC.71/21.04.048/2019-20 dated May 23, 2020. For the period
commencing September 1, 2020, asset classification for all such accounts shall
be as per the applicable IRAC Norms.
Yours faithfully,
(Manoranjan Mishra)
Chief General Manager
2