The proposal has gathered steam in the last month, with major political parties putting pressure on banks/FIs to reschedule loans of various companies, especially those in the small and medium sector -- FIs are, in any case, rescheduling several loans of larger corporates these days. It is believed that the matter also figured during the last meeting of the standing committee on finance. In the last month, three sets of meetings have taken place on this between various banks, FIs and theRBI.

Interestingly, in this case, the banks/FIs are also keen on working out something, as their non-performing assets (NPAs) are increasing since their borrowers are not paying their interest or repaying the capital borrowed in the past. It is now being proposed that the RBI change the classification of NPAs to take care of the interests of the banks/FIs.

Under the present norms, if interest is not paid on a loan for two successive quarters, it is to be declared as an NPA. Under the proposed scheme, this will be increased to four quarters.

The proposal, which will be widely welcomed by both industry as well as banks/FIs has, however, sent chills down the spines of several top bankers as this will make banks more lax in their loan appraisals and is also prone to a lot of misuse. If it is generally known that banks will be a lot more amenable to granting a moratorium, then there would be increased pressure to grant this to favoured companies.

Among the other proposals being considered as part of thispackage are that, for new projects, loans be provided at a zero interest rate for the first three years, and to charge this from the companies by levying higher rates for the later years -- thus companies would not face a cash-flow problem in the early years.

Another proposal is to allow banks/FIs to reschedule loans of companies engaged in new projects without attracting the provisions of NPAs. So, if a company is setting up a new project but does not start production, the FI/bank can renegotiate the loan, and make it more attractive for the company. This will benefit several greenfield projects currently underway and which are facing severe problems in their cash flows.