RBI asks lenders to standardize NPAs on full recovery of loans

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RBI has tightened the norms for the recognition of dud assets, loans that have no resale value.

RBI has instructed banks not to upgrade the NPAs (Non-Performing Assets) as standard assets on receiving interest payments. It has also mandated the lenders to mention the due dates with the principal and interest amount.

The monetary authority has been issuing new or revised norms on NPA classification.

The monetary authority clarified income recognition, asset classification, and provisioning about advances (IRACP) norms. RBI has asked the banks not to standardize NPAs account after getting only interest dues.

RBI observed that some lending institutions upgrade NPAs as standard assets on recovering only the interest payment overdue, partial overdue, etc.

To clear the ambiguity, now NPAs should be upgraded when the borrower pays the entire arrears of principal and interest.

The lenders also need to mention the exact due date of the loan with a proper breakdown of interest and principal amount in the loan agreements. Earlier, lenders provided only a description of due dates, leaving scope for misinterpretation.

From now on, all the lenders need to specify the exact due dates, break up of principal and interest amounts, frequency of repayment, an example of NPA classification dates, etc., in the loan agreement.

The lenders should notify these details to the borrower while sanctioning the loan, during subsequent changes, till the full repayment of the loan with interest.

The new norms will be applicable immediately for new and existing loans.

In the case of a moratorium, lenders should mention the exact date for the commencement of repayment.

The RBI clarified that all amounts should be treated as overdue if the borrowers do not pay the amount on the due date, irrespective of the lender’s time to run such processes. Similarly, all the NPAs and SMAs (Special mention accounts) should get classified as a part of the day-end process.

The norms will ensure uniformity of IRACP norms across all lending institutions, and changes can be made on a case-to-case basis without tweaking the main points.

SMA is the account that starts showing the symptoms of bad assets in the first 90 days, after the maturity date.

All the loans, except overdraft or cash credit, shall be classified as SMA if any amount becomes overdue or the outstanding amount exceeds the sanctioned limit, whichever is lower, for up to 30 days as SMA, 30-60 days as SMA-1, 60-90 days as SMA-2, and above 90 days as NPA.

The norms apply to all loans (except Agri loans), irrespective of the lending institution’s exposure.

Extant provisions shall continue for all the loans under restructuring or when the date of commencement of repayment is not declared.

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