The Reserve Bank of India (RBI) has clarified that lenders should reclassify a non-performing asset (NPA) to “standard” asset only when the entire arrears of interest and principal are paid by the borrower.
In a notification issued on 12 November, 2021, the regulator said that it has noted that some lending institutions were upgrading accounts classified as NPAs to ‘standard’ asset category upon payment of only interest overdues, partial overdues, etc.
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.
“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.
Further, RBI has notified that the lenders have to follow these instructions by 31st December, 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.
However, accounts which have availed off the moratorium facility, the exact date of commencement of repayment shall also be specified in the loan agreements, it added.