The Reserve Bank of India (RBI) on Friday said that the banks can only reclassify non-performing assets to “standard” assets only when the complete arrears of interest and principal are paid by the borrowers.
The regulator has observed that some lenders were upgrading accounts classified as non-performing assets (NPAs) to the ‘standard’ asset category only when the interest overdue, partial overdue, etc are paid.
“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. 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.
The apex bank has also advised the lenders to keep on record the exact due dates for repayment of loans, the frequency of repayment, break up between principal and interest, and examples of SMA/NPA classification dates in the loan agreements.
The present rules provide that if an amount is not paid by the bank’s due date, it will be considered “late.” The government has noted that, in certain cases, payback due dates are not clearly indicated in loan agreements, but rather a description of due dates is given, providing room for diverse interpretations.
“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.
The exact date of repayment for accounts that have availed of the moratorium facility must also be disclosed in the loan agreements, according to the regulator.
According to the RBI, lenders must abide by these new loans by December 31, 2021, but for current loans, these instructions must be followed as and when the loans are up for renewal or review.