NBFCs get extra 6-months to keep system ready to implement NPA norms

The Reserve Bank of India (RBI) has given finance companies extra time till September 30, 2022 to have systems ready to implement rule wherein bad loans can be upgraded as ‘standard’ asset only when entire arrears of interest and principal are paid. In November 2021, RBI had given time till March 31, 2022 to implement the rule.

Mahesh Thakkar, director-general, Finance Industry Development Council (FIDC) said, "This is good for the industry as finance companies had asked for additional time. The financial year closure was approaching (March 2022), so firms will not be adversely affected. NBFCs will be able to provide, realign and also educate customers".

"There are issues like keeping small accounts out of this ambit of this rule which are yet to be addressed", he added.

Clarifying queries in asset recognition for lenders including banks and finance firms, RBI in a notification said the definition of ‘out of order’ will apply to all loans offered as an overdraft facility. This includes overdrafts not meant for business purposes and also those which entail interest repayments as the only credits.

The ‘previous 90 days period’ for determining ‘out of order’ status of a Cash Credit and Overdraft account will include the day for which the day-end process is being run.

Moreover, when borrowers have more than one credit facility with the lender, they have to repay the entire arrears of interest and principal for all the credit facilities to upgrade the account from non-performing asset to standard asset category.