Asset Classification and Income Recognition Following Expiry of COVID-19 Regulatory Package

Following the judgment of the Supreme Court in Small Scale Industrial Manufacturers Association v. UOI in which the Supreme Court held that the lenders concerned should waive interest on interest charged during the RBI-imposed Covid-19 moratorium, by its Circular dated April 7, 2021, the RBI (a) advised certain lending institutions (including banks and non banking financial companies (‘NBFCs’)) to put in place a board-approved policy to refund/adjust the interest on interest charged during the moratorium period, and (b) mandated such institutions to disclose, in their financial statements for the year ending March 31, 2021, the aggregate amount to be refunded/adjusted to their borrowers as aforesaid.

The Circular provides that the reliefs set out therein are applicable to all borrowers, including those who had availed of working capital facilities during the moratorium period, irrespective of whether the moratorium had been fully or partially availed, or not availed in terms of previous circulars issued by the RBI.

The asset classification for accounts which were not granted any moratorium in terms of previous circulars issued by the RBI on the Covid-19 regulatory package, will be as per the criteria specified in extant prudential norms on income recognition, asset classification and provisioning (‘IRAC Norms’). However, for accounts which were granted moratorium under Covid-19 regulatory package, the asset classification for the period from March 1, 2020 to August 31, 2020, will be as per the previous circulars issued by the RBI on the subject in April 2020 and May 2020 and the asset classification for the period from September 1, 2020 onwards, will be as per the extant IRAC Norms.

Published In:Inter Alia - Quarterly Edition - June 2021 [ English Chinese japanese ]
Date: June 30, 2021