On Friday, the Reserve Bank of India refined that lenders should reclassify a non-performing asset to a “standard” asset only when the borrower pays the complete arrears of interest and principal.
The regulator has remarked that some lending organisations promoted accounts listed as non-performing assets (NPAs) to the ‘standard’ asset classification upon fee of only interest overdue, partial overdue, etc.
“It has been observed that some lending institutions upgrade accounts classified as NPAs to ‘standard’ asset category upon 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 ‘standard’ assets only if the borrower pays entire arrears of interest and principal,” the RBI said.
It has also directed lenders to specify particular due dates for payment of loans, compensation frequency, break up between principal and interest, and examples of SMA/NPA classification dates in the loan agreements.
The standards currently say that an amount will be treated as ‘overdue’ if not paid on the due date fixed by the bank. The central has witnessed that the due dates for repayments are seldom not explicitly considered in the loan agreements. Instead, a classification of due dates is mentioned, leaving scope for different versions.
“Henceforth, the exact due dates for repayment of a loan, frequency of repayment, break up between principal and interest, examples of SMA/NPA classification dates, etc. shall be clearly specified in the loan agreement, and the borrower shall be apprised of the same at the time of loan sanction and also at the time of subsequent changes, if any, to the sanction terms/loan agreement till full repayment of the loan”, the RBI said.
Also, the regulator said that the accounts that have availed of the interim facility and the specific date of origin of payment should also be defined in the loan agreements. The RBI has said the lenders have to follow these instructions by December 31, 2021, as new loans are affected, but in the case of enduring loans, these directions should be followed as and when such loans become due for renewal/review.