RBI clarifies norms for upgrading of accounts classified as NPAs

Asks lenders to mention exact due date for repayment in loan agreements

The Reserve Bank of India on Friday clarified that lenders should reclassify a non-performing asset to “standard” asset only when the entire arrears of interest and principal are paid by the borrower.

The regulator has noted that some lending institutions were upgrading accounts classified as non-performing assets (NPAs) to ‘standard’ asset category upon payment of only interest overdues, partial overdues, etc.

"It has been observed that some lending institutions upgrade accounts classified as NPAs to ‘standard’ asset category upon payment of only interest overdues, partial overdues, etc. In order to avoid any ambiguity in this regard, it is clarified that loan accounts classified as NPAs may be upgraded as ‘standard’ assets only if entire arrears of interest and principal are paid by the borrower," the RBI said.

It has also instructed lenders to mention exact due dates for repayment of loans, the frequency of repayment, breakup between principal and interest, and examples of SMA/NPA classification dates in the loan agreements.

The norms currently say that an amount will be treated as ‘overdue’ if it is not paid on the due date fixed by the bank. The central has observed that currently the due dates for repayments are sometimes not specifically mentioned in the loan agreements, and instead a description of due dates is mentioned, leaving scope for different interpretations.

“Henceforth, the exact due dates for repayment of a loan, frequency of repayment, breakup 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, accounts which have availed off the moratorium facility, the exact date of commencement of repayment shall also be specified in the loan agreements, the regulator said.

The RBI has said the lenders have to follow these instructions by December 31, 2021, as far as fresh loans are concerned but in case of existing loans, these instructions should be followed as and when such loans become due for renewal/review.