Natural calamities: RBI issues loan restructuring norms for banks

To enable banks to take uniform and concerted action expeditiously in areas affected by natural calamities, the Reserve Bank of India has come up with guidelines covering institutional framework, restructuring of existing loans, providing fresh loans and other ancillary relief measures.

Since the area and time of occurrence and intensity of natural calamities cannot be anticipated, it is imperative that banks have a blueprint of action for such eventualities so that the required relief and assistance is provided with utmost speed and without any loss of time, the RBI said.

All the branches of commercial banks and their regional and zonal offices will have a set of standing instructions spelling out the action that the branches will have to initiate in the calamity-affected areas immediately after the requisite declaration by the district/State authorities.

Divisional/zonal managers of commercial banks should be vested with certain discretionary powers so that they do not have to seek fresh approvals from their central offices to the line of action agreed to by the district/State level bankers’ committees (SLBCs).

The common thread to extend relief measures is that the crop loss assessed should be 50 per cent or more. 

The central bank said all short-term loans, except those which are overdue at the time of occurrence of natural calamity, should be eligible for restructuring.

In all cases of restructuring, banks should consider a moratorium period of at least one year. Further, the banks should not insist on additional collateral security for such restructured loans.

The principal amount of the short-term loan as well as interest due for repayment in the year of occurrence of natural calamity can be converted into term loan, the RBI said.

Banks can grant consumption loans up to ₹10,000 to existing borrowers without any collateral. The limit may, however, be enhanced beyond ₹10,000 at the discretion of the bank.

Generally, the restructured period for repayment may be three-five years. However, where the damage arising out of the calamity is severe, banks may, at their discretion, extend the period of repayment ranging up to seven years and in extreme cases of hardship, to a maximum of 10 years in consultation with the task force/State level bankers’ committee.

The central bank said a view needs to be taken by SLBC/DCC depending on the severity of the calamity as to whether a general reschedulement of all other loans (besides agriculture loans) such as loans granted for allied activities and loans given to rural artisans, traders, micro/small industrial units or in case of extremes situations, medium enterprises is required.

The restructured portion of the short-term as well as long-term loans can be treated as current dues and need not be classified as NPA (non-performing asset). Nevertheless, banks are required to make higher provisions for such restructured standard advances.

The accounts that are restructured for the second time or more on account of natural calamities would retain the same asset classification category on restructuring.