**Policy Summary: RBI Relief for GST-Registered MSME Borrowers**
This circular, RBI201718129 DBR.No.BP.BC.10021.04.048/2017-18, issued by the Reserve Bank of India (RBI) on February 7, 2018, addresses the classification of loan accounts for Micro, Small, and Medium Enterprises (MSMEs) registered under the Goods and Services Tax (GST) regime. The circular provides temporary relief to MSME borrowers facing cash flow challenges during the GST transition.
Under this policy, banks and Non-Banking Financial Companies (NBFCs) are permitted to continue classifying exposures to MSME borrowers as standard assets, even if they would otherwise be classified as Non-Performing Assets (NPAs) based on the standard 90/120-day delinquency norms, subject to the following conditions:
1. The borrower must be registered under the GST regime as of January 31, 2018.
2. The aggregate exposure of banks and NBFCs to the borrower, including fund-based and non-fund-based facilities, must not exceed ₹250 million as of January 31, 2018.
3. The borrower's account must have been classified as a standard asset as of August 31, 2017.
4. Overdue amounts as of September 1, 2017, and payments due between September 1, 2017, and January 31, 2018, must be paid within 180 days from their original due dates.
5. Banks and NBFCs are required to make a provision of 5% against exposures not classified as NPAs under this circular. This provision can be reversed when no amount is overdue beyond the 90/120-day norm.
6. The relief is solely for asset classification purposes. Income recognition remains subject to standard norms; interest overdue for more than 90/120 days should not be recognized on an accrual basis.
For NBFCs, the 90-day delinquency norm will be effective from March 31, 2018. Consequently, provision reversal and income recognition restrictions will be referenced against interest overdue for more than 90 days from that date.
The circular is addressed to all banks and NBFCs regulated by the Reserve Bank of India. Further inquiries can be directed to S. K. Kar, Chief General Manager.
Key Entities Referenced
Reserve Bank of India: The regulatory body issuing the circular.
NBFCs: Non-Banking Financial Companies regulated by the Reserve Bank of India.
Goods and Services Tax GST: A value-added tax levied on most goods and services sold for domestic consumption.
Non-Performing Asset NPA: A loan or advance for which principal or interest payment remained overdue for a period of time.
Micro, Small and Medium Enterprises Development MSMED Act, 2006: An Act of the Parliament of India to facilitate the promotion and development and enhance the competitiveness of micro, small and medium enterprises.
MSME Borrowers: Micro, Small, and Medium Enterprise borrowers affected by GST implementation.
S. K. Kar: Chief General Manager at Reserve Bank of India, signatory of the circular.
RBI/2017-18/129
DBR.No.BP.BC.100/21.04.048/2017-18 February 07, 2018
All banks and NBFCs regulated by the Reserve Bank of India
Madam / Dear Sir,
Relief for MSME Borrowers registered under Goods and Services Tax
(GST)
Presently, banks and NBFCs in India generally classify a loan account as
Non-Performing Asset (NPA) based on 90 day and 120 day delinquency
norms, respectively. It has been represented to us that formalisation of
business through registration under GST had adversely impacted the cash
flows of the smaller entities during the transition phase with consequent
difficulties in meeting their repayment obligations to banks and NBFCs. As a
measure of support to these entities in their transition to a formalised
business environment, it has been decided that the exposure of banks and
NBFCs to a borrower classified as micro, small and medium enterprise under
the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006,
shall continue to be classified as a standard asset in the books of banks and
NBFCs subject to the following conditions:
(i) The borrower is registered under the GST regime as on January
31, 2018.
(ii) The aggregate exposure, including non-fund based facilities, of
banks and NBFCs, to the borrower does not exceed ` 250 million
as on January 31, 2018.
(iii) The borrower’s account was standard as on August 31, 2017.
(iv) The amount from the borrower overdue as on September 1, 2017
and payments from the borrower due between September 1, 2017and January 31, 2018 are paid not later than 180 days from their
respective original due dates.
(v) A provision of 5% 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 90/1201 day norm, as the case
may be.
(vi) 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 90/1202 days, the
same shall not be recognised on accrual basis.
Yours faithfully,
(S. K. Kar)
Chief General Manager
1 Consequent upon transition to 90 day delinquency norm with effect from March 31, 2018 for
NBFCs, provision reversal will be with reference to the 90 day norm
2 Consequent upon transition to 90 day norm with effect from March 31, 2018 for NBFCs, restriction
on income recognition on accrual basis will be with reference to interest overdue for more than 90
days.