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Customer Education Material on Overdue and NPA as per RBI Guidelines

(20230522)

2023-05-22

Any amount due to the bank (principal, interest or any charges levied on the customer account) are to be paid on the date fixed by the Bank i.e. due date. In case full dues are not received before the bank runs the day-end process for that date, the account becomes overdue.

Definitions for RBI Categories
Standard Asset An asset that is performing and < 90 days in arrears/overdue.
Note: All arrears of 1 day or more are deemed to be Special Mention Accounts (SMA). There are three categories: SMA-0, SMA-1 and SMA-2.
Standard Asset : SMA-0 Principal or interest payment or any other amount wholly or partly not overdue for more than 30 days, but account showing signs of incipient stress, i.e., an asset that shows signs of potential weakness, which if left unaddressed may jeopardize the liquidation of the debt.
Standard Asset : SMA-1 Principal or interest payment or any other amount wholly or partly overdue between 31-60 days.
Standard Asset : SMA-2 Principal or interest payment or any other amount wholly or partly overdue between 61-90 days.
Non-Performing Asset A non-performing asset (NPA) is a loan or an advance where:
  • interest and/ or instalment of principal remains overdue for a period of more than 90 days in respect of a term loan,
  • the account remains ‘out of order’1 , in respect of an Overdraft/Cash Credit (OD/CC),
  • the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,
  • the instalment of principal or interest thereon remains overdue for two crop seasons for short duration crops,
  • the instalment of principal or interest thereon remains overdue for one crop season for long duration crops,
  • the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction undertaken in terms of the Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021 as amended from time to time.
  • in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.
Substandard Asset An asset that has remained non-performing for a period less than or equal to 12 months.
Doubtful Asset An asset will be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses may make collection or liquidation in full - on the basis of currently known facts, conditions and value - highly questionable and improbable.
Loss Asset A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words, such as asset is considered uncollectable and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

 

1‘Out of Order’ status: A CC/OD account shall be treated as ‘out of order’ if:

i) The outstanding balance in the CC/OD account remains continuously in excess of the sanctioned limit/drawing power for 90 days, or

ii) The outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but there are no credits continuously for 90 days, or the outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but credits are not enough to cover the interest debited during the previous

90 days period.

 

Upgradation of loan accounts classified as NPAs:

The loan accounts classified as NPAs may be upgraded as ‘standard’ asset only if entire arrears/overdue of interest and principal are paid by the borrower. In case of borrowers having more than one credit facility from the Bank, loan accounts shall be upgraded from NPA to standard asset category only upon repayment of entire arrears of interest and principal pertaining to all the credit facilities.

Illustrative Example:

If due date of a loan account is March 31, 2022, and full dues are not received before the bank runs the day-end process for this date, the date of overdue shall be March 31, 2022. If it continues to remain overdue, then this account shall get tagged as SMA-1 upon running day-end process on April 30, 2022 i.e. upon completion of 30 days of being continuously overdue. Accordingly, the date of SMA-1 classification for that account shall be April 30, 2022.

Similarly, if the account continues to remain overdue, it shall get tagged as SMA-2 upon running day-end process on May 30, 2022 and if continues to remain overdue further, it shall get classified as NPA upon running day-end process on June 29, 2022 i.e. upon completion of 90 days of being continuously overdue.

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