The Monetary Authority has been issuing new/revised norms on Due Asset Classification from time to time as the system-wide NPAs have started rising.
Issuance of certain clarifications including all existing provisions on prudential norms on Income Recognition, Asset Classification and Provisions Related to Advances (IRACP) and provisions issued on 1st October, 2021, reserve Bank of India Asked the banks not to upgrade the NPA account only after paying the outstanding interest.
It has been observed that some lending institutions upgrade the accounts classified as NPA to standard accounts only on payment of overdue interest, partial overdue etc. In order to avoid any ambiguity in this regard, it is clarified that loan accounts classified as NPA can be upgraded as one. The apex bank said in a revised notification this evening that the standard account will be opened only after the entire outstanding amount of interest and principal has been paid by the borrower.
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 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.
All these should be clearly specified in the loan agreement and the borrower should be informed about the same at the time of loan sanction and subsequent changes, if any, and till the loan is repaid in full. To be notified, the RBI said, adding this would be applicable immediately for new loans on or before December 31, 2021, and for existing loans if changes occur.
In cases of loans under moratorium, the exact date of commencement of repayment will also be specified in the loan agreements, it added.
Due to end-of-day/one-day default norms, which has irked many large borrowers, RBI further clarified that due date an account as overdue as part of day-end procedures of the lender Reiterating that all existing 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 (Non-Performing Assets) will be done as part of the end-of-day process and the SMA/NPA classification date will be the calendar date for which that’ll be The Day. -end process is run. 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.
The Monetary Authority further stated that these changes are being made to ensure that the IRACP norms are applied equally across all lending institutions and are applicable to all lending institutions (making necessary changes on a case to case basis). But not affecting the main points).
On NPA classification, it said the lender should recognize the initial stress in a borrower’s account immediately upon default, by classifying it as an SMA. Without any ambiguity, it clarified that the gap is intended to be continuous and accordingly, loans other than revolving facilities like cash credit/overdraft will become SMA if the principal or interest payment or any other amount becomes overdue in whole or in part. or if the outstanding amount for 0-30 days as SMA, 30-60 days as SMA-1 and 60-90 days as SMA2/NPA for more than the sanctioned limit or drawing power, which Even less, remains more than continuously.
Stated differently, the SMA/NPA date will reflect the asset classification status of an account as of the end of the day on that calendar date.
For example, if the due date is March 31, and the full dues are not received before end-of-day processing, the overdue date would be March 31.
If it remains overdue, this account will be tagged as SMA-1 on 30th April on completion of 30 days of continuous overdue processing of day end.
Accordingly, the SMA-1 classification date for that account will be April 30. Similarly, if the account remains overdue, it will be tagged as SMA2 in end-of-day processing on 30th May and if further overdue, it will be tagged as NPA on running of end-of-day processing on 29th June. will be classified as
However, for NBFCs, 90 days for SMA-2/NPA classification may be read as per the applicable norms.
The central bank has clarified that the SMA classification guidelines apply to all loans, including retail loans (except agricultural loans governed by crop season-based asset classification norms), irrespective of the risk size of the lending institution. Be.
RBI said in the matter from March 31, 2022 interest payment In respect of term loans, an account will be classified as NPA if the applicable interest on the specified tenure remains overdue for more than 90 days. If a borrower account becomes overdue on or after March 31, 2022, its classification as NPA will be based on the account being overdue for more than 90 days.
On up-gradation of accounts classified as NPA, it said a loan account classified as NPA can be upgraded to standard, if the entire outstanding dues of interest and principal are paid. But those accounts classified as NPA on account of restructuring, or non-realization of the date of commencement of commercial operations, etc., shall continue with the existing provisions.