RBI tightens norms, directs lenders not to standardize NPA account

The RBI on Friday tightened norms for recognition of dud assets and directed lenders not to standardize 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 and revised norms on dud asset classification as system-wide NPAs began to balloon.

The central bank issued some clarifications to all the extant provisions, 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 said that some lending institutions upgrade accounts classified as NPAs to standard accounts on payment of any 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.

Lenders have also been asked to specifically mention in the loan agreements the exact due date of a loan and the breakup of the principal and interest, examples of SMA/NPA classification dates etc. All these should 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, and till full repayment of the loan is done, the RBI said this will be applicable immediately for new loans or before December 31, 2021 and for the existing loan as and when changes occur. In cases of a loan under moratorium, the exact date of commencement of repayment shall also be specified in the loan agreements.

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The RBI further clarified that an account shall be flagged as overdue as part of the lender’s day-end processes for the due date, irrespective of the time of running such processes, reiterating that all extant IRACP norms specify that an amount must be treated as overdue if it’s not paid on the due date fixed by the lender. Similarly, classification of an account as special mention account (SMA) as well as NPA shall be done as part of the day-end process and the SMA/NPA classification date shall be the calendar date for which the day-end process is run. Stated differently, the date of SMA/NPA shall reflect the asset classification status of an account at the day-end of that calendar date.

The monetary authority further said these changes are being made to ensure that the IRACP norms are uniformly implemented across all lending institutions and are applicable mutatis mutandis (making necessary changes on a case to case basis but not affecting the main points) to all lending institutions.