The Reserve Bank of India (RBI) has directed banks that loan accounts classified as non-performing assets (NPAs) should be upgraded to ‘standard’ assets if the entire outstanding balance of interest and principal is paid by the borrower. is done.
According to the central bank, some lending institutions upgrade accounts classified as NPAs to the ‘standard’ asset category only on payment of interest overdue and partial overdue. “In case of interest payments in respect of term loans, an account will be classified as NPA if the applicable interest on the specified period remains outstanding for more than 90 days,” RBI said in a notification.
Lenders have been asked to specifically mention the loan’s due date and a breakdown of principal and interest in loan agreements, rather than detailing due dates, which leaves scope for interpretation. Thereafter, all lenders will have to clearly mention the exact due dates for repayment, frequency of repayment, break up between principal and interest, examples of SMA/NPA classification dates, etc., the RBI said.
It said this should be clearly specified in the loan agreement and the borrower would be made aware of the same at the time of loan sanction and subsequent changes, if any, and till full repayment of the loan. This will be applicable immediately for new loans on or before December 31, 2021 and for existing loans if changes take place.
In cases of loans under moratorium, the exact date of commencement of repayment will also be specified in the loan agreements, the RBI said.
Due to day-end/one-day default norms, RBI further clarified that an account should be marked as overdue as part of the lender’s day-end procedures for the due date, even if such running whatever the time. Procedures, reiterating that all existing Income Recognition, Asset Classification and Provisioning (IRACP) norms specify that the amount should be considered overdue if the payment is not made on the due date set by the lender.
Similarly, classification of an account as SMA (Special Mention Account) as well as NPA should be done as part of the end-of-day process and the SMA/NPA classification date would be the calendar date for which the end-of-day process moves. Stated separately, the SMA/NPA date will reflect the asset classification status of an account as on the day-end of that calendar date, the regulator emphasized.
On NPA classification, the central bank said that the lender should recognize the initial stress in a borrower account immediately upon default, by classifying it as an SMA.
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