RBI announces MSME Borrowers registered under GST not to be classified as NPA, outlines other conditions

RBI Updates

RBI decides that borrower classified as micro, small and medium enterprise (MSME) under MSMED Act, 2006 will continue to be classified as a standard asset in the books of banks and NBFCs in subject to the following conditions :-

  1. The borrower is registered under the GST regime as on January 31, 2018.
  2. 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.
  3. The borrower’s account was standard as on August 31, 2017.
  4. 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.
  5. 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.
  6. 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.

RBI highlights that currently, banks and NBFCs generally classify a loan account as Non-Performing Asset (NPA) based on 90 day and 120 day delinquency norms, respectively. However, RBI has taken this step to formalise the business because registration under GST had adversely impacted the cash flows of the smaller entities during the transition phase which consequently had caused difficulties in meeting their repayment obligations to banks and NBFCs.


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