The Reserve Bank of India (RBI) has revised its guidelines to allow banks to extend relief measures to borrowers in areas affected by natural calamities without waiting for individual requests. The new framework will come into effect from July 1, 2026.
Key Changes in the Revised Framework
The RBI issued fresh directions on Wednesday after considering stakeholder feedback on the draft norms covering relief measures in calamity-affected regions. The framework applies to commercial banks, small finance banks, local area banks, cooperative banks, non-banking financial companies (NBFCs), and All India Financial Institutions.
According to the RBI, lenders are permitted to extend relief measures to all borrowers without waiting for a request from them. Borrowers have an opt-out clause, allowing them to withdraw at any point until the end of 135 days from the date of declaration of the natural calamity.
Operational Flexibility for Banks
Under the revised norms, banks may operate calamity-hit branches from temporary premises after informing the concerned RBI regional office. They can also set up satellite offices, extension counters, or mobile banking units in affected areas to ensure continuity of services.
The RBI emphasized that banks must take immediate action to restore ATM services as soon as possible. During the restoration period, banks shall provide alternative arrangements to address the immediate cash requirements of affected areas.
Relief Measures and Eligibility
Banks may, at their discretion, offer relief such as waiver or reduction of fees and charges for customers in notified disaster-hit regions for a period of up to one year. Borrowers will be eligible for resolution if their accounts are classified as 'Standard' and are not overdue by more than 30 days with the lender on the date the calamity occurred.
The RBI clarified that borrower accounts which may have slipped into non-performing assets (NPA) between the date of occurrence of the calamity and implementation of the resolution plan shall be upgraded as 'Standard' upon implementation of the resolution plan.
Additional Provisioning Requirements
The central bank has mandated that lenders make an additional specific provision of 5 per cent of the outstanding debt for borrowers whose accounts are restructured under a resolution plan. This additional provision is over and above existing prudential requirements, subject to a maximum of 100 per cent.
The RBI rejected suggestions to relax eligibility norms to cover all standard borrowers overdue up to 89 days, stating that the objective is to help borrowers affected by natural calamities who were otherwise not under stress. The revised framework is more relaxed than the extant norms.
Stakeholders had also proposed reducing the extra provisioning requirement to nil or capping it at 2 per cent instead of 5 per cent. The RBI declined, saying the provision appropriately balances the higher risk in such accounts while avoiding the steeper provisioning applicable to regular restructured accounts.
Background
The central bank first proposed a harmonised framework for disaster-related loan resolution in June 2023. The new guidelines aim to streamline the process and provide timely relief to borrowers in calamity-affected areas.
