RBI extends time for implementation of guidelines for upgrading NPA accounts

The Central bank had issued a circular on November 12, 2021, allowing time till December 31, 2021 to implement all the stricter prudential norms.

On Tuesday, RBI said "the new circular does not, in any way, interfere with the extant guidelines on the implementation of Ind-AS by NBFCs… loan accounts classified as NPAs may be upgraded as 'standard' asset only if the entire arrears of interest and principal are paid by the borrower. (Also), NBFCs shall have time till September 30, 2022 to put in place the necessary systems to implement this provision." The measure was taken following a representation from NBFCs.

The November 12 circular was an improvement on the circular issued on October 1, 2021 in connection with norms on income recognition, asset classification and provisioning pertaining to advances, wherein the RBI had prevented all types of lenders from upgrading an NPA account after getting only interest dues cleared.

The revised circular also stated the definition of 'out of order', as clarified in the November 2021 circular, shall be applicable to all loans offered as an overdraft facility, including those not meant for business purposes and/or which entail interest repayments as the only credits.

In case of borrowers having more than one credit facility from a lending institution, loan accounts shall be upgraded from NPAs to standard asset category only after repayment of entire arrears of interest and principal pertaining to all the credit facilities, it said.

The circular underlined that there is no change to the requirements related to reporting of information to CRILC (Central Repository of Information on Large Credits), which will continue to be governed in terms of extant instructions for respective entities.

The new circular also makes it compulsory for all lenders to specifically mention in the loan agreements the exact due date of a loan and the breakup of the principal and interest, among others, instead of giving a description of the due dates, which leaves scope for interpretation.

"Henceforth, all lenders have to clearly mention the exact due dates for repayment, frequency of repayment, break up between the principal and interest, examples of SMA/NPA classification dates etc," it said.

All other instructions of the past circulars shall continue to be applicable as per the timelines specified therein, the circular added.

In relation to NPA classification, the November circular has said lenders must recognise incipient stress in a borrower account, immediately on default, by classifying it as SMA (Special Mention Account).