Relaxation in IRAC norms for MSME borrowers

RBI as well as the government has acknowledged the difficulties faced by small entities during the transition phase to GST. It is a matter of pleasure for us that these authorities are also making all necessary efforts not to put entities in unduly disadvantageous situation.

RBI has, vide a circular dated 7th Feb 2018, granted a big relief to MSME borrowers as well as banks and NBFCs by relaxing asset classification norms (IRAC norms) by granting a period of 180 days for repayment of dues from the respective due dates; subject to following conditions:

1. Such borrowers must be registered under GST as on 31.01.2018. Means those who did not register themselves under GST by that date not eligible for this relaxation.

2. Borrower must be categorized as MSME under MSMED Act 2006. It is to be noted that the proposed amendment in definition of 'MSME' approved by cabinet will come into effect only after the MSMED Act 2006 is amended by the parliament. So, as of now, the existing definition of MSME based on investment in plant & machinery or equipment shall continue to be valid.

3. The aggregate exposure (including non fund based facilities) of banks and NBFCs to such borrower should not exceed Rs. 25 crores as on 31.01.2018. It means aggregate exposure of all the banks and NBFCs taken together should be maximum Rs. 25 crores.

4. The borrower's account must have been classified as standard as on 31.08.2017. It means those already classified as NPA by 31.08.2017 will not get the benefit.

5. The overdues outstanding as on 01.09.2017 and amounts falling due between 01.09.2017 and 31.01.2018 can be repaid within maximum 180 days from their respective due dates instead of 90 days and still such accounts will be classified as standard. It means amount fallen due on 3rd June 2017 could be paid by 29th Nov 2017, amount fallen due on 3rd July 2017 could be paid by 29th Dec 2017 and so on. So, amount fallen due on 31st Jan 2018 can now be paid latest by 30th July 2018 without downgrading the account.

The members engaged in concurrent audit or to be engaged for statutory audit in April should also note down following two points:

1. A provision of 5% of outstanding exposure to be made for those accounts who are not classified as NPA even after 90 days of overdues due to this circular. This provision can be reversed when no amount is overdue beyond 90 days.

2. This relaxation is only for limited purpose of classification of accounts and not for income recognition. It means interest on those accounts that are overdue beyond 90 days but classified as standard shall not be recognized on accrual basis.

CA Mahesh Bansal

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