RBI asks banks not to standardise bad loans on just getting interest payments

In a significant move, the Reserve Bank on Friday tightened the norms for recognition of dud assets and directed lenders not to standardise an NPA account after getting only interest payment as well as to mandatorily mention the due dates along with details of interest and principal amounts.

The monetary authority has from time to time been issuing new/revised norms on dud asset classification as system-wide NPAs began to balloon.

Issuing some clarifications to all the extant provisions and including the ones issued on October 1, 2021, on the prudential norms on income recognition, asset classification and provisioning pertaining to advances (IRACP), the RBI asked banks not to upgrade an NPA account after getting only interest dues paid.

It has been observed that some lending institutions upgrade accounts classified as NPAs to standard accounts on payment of only interest overdue, partial overdue, etc. To avoid any ambiguity in this regard, it is clarified that loan accounts classified as NPAs may be upgraded as a standard account only if the entire arrears of interest and principal are paid by the borrower, the apex bank said in the revised notification this evening.

However, for NBFCs, 90-days for SMA-2/NPA classification may be read according to the applicable norms.

The central bank has clarified that the instructions on SMA classification are applicable to all loans, including retail loans (excluding the Agri loans governed by crop season-based asset classification norms), irrespective of the size of exposure of the lending institution.

The RBI said from March 31, 2022, in case of interest payments in respect of term loans, an account will be classified as NPA if the interest applied at specified rests remains overdue for over 90 days. If a borrower account becomes overdue on or after March 31, 2022, its classification as NPA shall be based on the account being overdue for over 90 days.

On the upgrading of accounts classified as NPAs, it said a loan account classified as NPAs can be upgraded as standard only if the entire arrears of interest and principal are repaid. But those accounts classified as NPA due to restructuring, or non-achievement of the date of commencement of commercial operations, etc, extant provisions shall continue.

Source: Economictimes