Bankers say that this is a marginal dilution of the stringent non-performing asset (NPA) norms imposed on them. ``These were becoming difficult to adhere to in an economy that was going through a bad phase. It is a positive move. Although it is only a marginal dilution in the norms, banks will seek to benefit from it," said a banker. However, analysts said it will add to the rising NPA level.

Currently, for advances where the terms of the loan agreement regarding interest and principal have been renegotiated or rescheduled after the commencementof production, banks are required to classify them as sub-standard for at least two years. ``Banks have represented that in certain situations (cyclical downturns) where loans have been rescheduled, but where borrowers have started servicing their loans on a regular basis after a short gap, the prescribed waiting period of two years is much too long," Bimal Jalan, governor of the RBI, said in his address to the chief executives of banks today while presenting the monetary and credit policy for the first half of 1999-2000.

"It has been decided that the waiting period of two years may be reduced to one year (or four quarters) if the interest and instalment of loans have been serviced regularly as per the terms of rescheduling," the governor said.Bankers said that due to the industrial recession, the provisioning norms for rescheduled loans were excessively stringent. With this dilution, although provisioning is not expected to come down substantially, it will nonetheless make an impact on banks' profits. "Itis clear the banks have been providing for rescheduled loans for two years. That's why they have been lobbying against it. Now, with the reduction to one year, although the impact will not be very material, the provisioning will be lower. The impact will be felt only in March 2000," said another analyst.

Bankers said that corporates which are currently going through a bad phase but are not wilful defaulters will stand to gain. "It is not whether the NPAs will be lower or not. More importantly, it is the quality of the loans that is important. If it is a corporate like Telco or an L&T which is falling under a sub-standard asset category, then the RBI's step is duly justified," analysts said.

The Reserve Bank has also decided that it is leaving the decision upto the board of directors of each bank to prescribe detailed rules for determining the date of commencement of commercial production of units. This will lead to removal of credit bottlenecks. ``Banks and FIs as well as borrowers have represented that adetailed prescription by the RBI regarding the concept of "commencement of production" is creating difficulties. This is more so in the case of infrastructure sector where commencement of production is difficult to pinpoint," Jalan said.