The Reserve Bank of India (RBI) has allowed both individuals and companies with loans up to Rs 1 crore an additional grace period of 60 days to repay their loans in the wake of the demonetization.

This is applicable for ongoing loans where the dues are payable between November 1 and December 31, 2016.

However, interest payments during this period will accrue on the account.

According to experts, about 15% of the loans of the banking system may benefit provided the businesses are able to revive themselves during this period. Non-banking finance companies (NBFCs) such as Shriram Finance, Mahindra Finance stand to gain while retail-led banks such as HDFC Bank with a large vehicle loan book, State Bank of India (SBI), which has a biggest retail book and SME exposure, will too be among the gainers.

Banks will also get a similar window to hold the loan as performing one without having classify it as a non-performing asset (NPA). Usually, if the principal or interest is overdue for more than 90 days, banks have to classify the account as an NPA and provide additional money for it.

This will include companies having sanctioned limit of Rs 1 crore for meeting the working capital requirements, term loans of Rs 1 crore of any bank, NBFCs or micro-finance institutions, including their home loan and agri loan exposures. Even the district central co-operative banks can avail of this relaxation.

Rajnish Kumar, managing director, SBI, in charge of retail and SME loans, told DNA Money, "This is a relief for people whose business is disrupted. They will get additional time of 60 days to repay the dues."

Many experts feel that it would be a relief for both the bankers and the borrowers to tide over the temporary cash crunch situation.

Vimal Bhandari, managing director and CEO of IndoStar Capital, told DNA Money, "The relaxation will conserve cash for borrowers. We lend to the large companies as well as to the small and medium enterprises. In many areas trading volumes have reduced and traders are not certain by when the demand would pick up. Such reliefs are needed so that businesses are given time to recoup without the penal provision of being treated as a defaulter."

Bank of America said in a report that asset quality will be less rocky for the NBFCs. "We think all the vehicle finance and lot of home finance with non banks and also with the retail banks will see a major relief. Micro, small loans which make up 15 % of the system bank loans with an average ticket size of Rs 5 lakh, in effect all loans except certain home loans which is 60% to 70% of the asset book should get this reprieve," said the report.

However, rating agencies warn if the slowdown prolongs, there could be trouble. Rating agency Crisil said that the RBI move will provide some respite to the non-banks in managing the asset quality in the interim period.

"However, if the disruption prolongs beyond two months, asset quality pressures could manifest."

With the economic activity coming to a complete standstill, the government on Monday allowed farmers to use the old Rs 100 notes to buy seeds for the crucial rabi season for which sowing is overdue, it is expected that the government may allow them to buy fertilizers also with the old notes so that the agricultural production does not suffer.

RBI relaxed more norms on cash withdrawals. The overdraft and cash credit account holders can now withdraw up to Rs 50,000 in a week. Earlier, only current account holders were allowed to withdraw up to Rs 50,000 in cash, in a week. The Rs 50,000 withdrawals however will be disbursed predominantly in Rs 2,000 denomination bank notes. #casansaar (DNA India)