On February 15, 2022, the Reserve Bank of India (RBI) extended the deadline for non-banking financial companies (NBFCs) to comply with new Non-Performing Assets (NPAs) classification norms (the norms are issued by RBI in November 2021) to September 2022 from the earlier deadline of March 2022.
- Background: As per the ‘Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances – Clarifications’, which was issued by RBI on November 15, 2021, the loan accounts that are classified as NPAs could be upgraded as ‘standard’ asset only if entire arrears of interest and principal are paid by the borrower.
- Currently, the NBFCs are provided with a timeline till September 2022 to implement the above provision.
RBI’s Clarification for Certain Provisions:
i.Definition of ‘out of order’:
a.Existing Clarification provided by RBI :
Cash credit/Overdraft (CC/OD) account is classified as NPA if it is ‘out of order’. An account will be treated as ‘out of order’ under the following 3 conditions.
- The outstanding balance in the CC/OD account remains continuously in excess of the sanctioned limit/drawing power for 90 days, (or)
- 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.
- Currently, RBI has clarified that, the definition of ‘out of order’ as applicable to all loan products being offered as an OD facility, including those not meant for business purposes and/or which entail interest repayments as the only credits.
- The ‘90 days period’ for determination of ‘out of order’ status of a CC/OD account should be inclusive of the day for which the day-end process is being run.
ii.RBI clarified that if the borrowers have more than one credit facility from a lending institution then the loans classified as NPA will be upgraded to standard category only if all dues are paid.
iii.RBI does not make any changes to the requirements related to reporting of information to CRILC (Central Repository of Information on Large Credits).
iv.The November 2021 norms does not interfere with the extant guidelines on implementation of Indian Accounting Standards (Ind AS) by NBFCs.
Note – Under the Ind-AS guidelines that are being followed by NBFCs, the delinquent loans are classified as gross stage-1 (loans overdue by up to 30 days), gross stage-2 (loans overdue between 31 and 89 days) and gross stage-3 (loans overdue for over 90 days). There is no categorisation of standard and bad loans for NBFCs under this system.
i.For all categories of NBFCs, the current NPA classification norm was changed to the ‘overdue period of more than 90 days’ i.e. debt is classified as non-performing when loan payments have not been made for a period of 90 days.
ii.However, in many NBFCs, the NPA classification is made after the end of 90 or 180 days.
Recent Related News:
On December 28, 2021, the RBI released the ‘Report on Trend and Progress of Banking in India 2020-21’, which presents the performance of the banking sector, including co-operative banks, and NBFCs during FY21 and FY22 (till December 2021).
The gross non-performing assets (GNPA) ratio of SCBs (Scheduled Commercial Banks) declined from 8.2 percent at end of March 2020 to 6.9 percent at end-September 2021.
About Reserve Bank of India (RBI):
Establishment – 1st April 1935
Headquarters – Mumbai, Maharashtra
Governor – Shaktikanta Das
Deputy Governors – Mahesh Kumar Jain, Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar