The Banking Regulations and Policy Department of the central bank earlier fixed that banks cannot classify loans if a borrower paid at least 25 per cent of loans’ instalments by 2021. But the central bank has to change its decision as a large number of CMSMEs cannot meet the condition, sources said.

The BB issued a circular on Wednesday keeping provision of 1.5 per cent instead of 2.0 per cent so that banks are encouraged to disburse loans to the CMSME sector. Banks can transfer the interest or profit of these loans to the income sector, the circular added.

The relaxation will be applicable only for the period of 1 January 2021 to 31 December 2021.