RBI Guidelines and Rules for NPA

RBI Guidelines and Rules for NPA

According to the Reserve Bank of India (RBI) guidelines, a Non-Performing Asset (NPA) is defined as a loan or advance for which the principal or interest payment remains overdue for a period of more than 90 days.

1. Classification Norms:

• If the interest or principal remains overdue for more than 90 days, the account is classified as NPA.

• The counting of days past due (DPD) is based on the oldest payment due date.

• For agricultural loans:

  • Short duration crops: NPA if overdue for two crop seasons.

  • Long duration crops: NPA if overdue for one crop season. “Long duration” crops are those with a crop season longer than one year.

2. Special Mention Accounts (SMA):

• Accounts showing early signs of stress are classified as SMA before becoming NPA:

  • SMA-0: Up to 30 days overdue

  • SMA-1: More than 30 days and up to 60 days overdue

  • SMA-2: More than 60 days and up to 90 days overdue

• If overdue continues beyond 90 days, the account is classified as NPA.

3. Upgradation of NPA:

• An account classified as NPA can be upgraded to ‘standard’ only if the borrower pays all overdue principal and interest.

• In case of multiple linked accounts, all outstanding dues in all NPA accounts must be cleared to lift the NPA status.

4. Income Recognition and Provisioning:

• Once an account is classified as NPA, any interest accrued but not realized must be reversed.

• Banks must make provisions for NPAs at the end of each calendar quarter to ensure accurate financial reporting.

5. Identification and Record of Recovery:

• Identification of NPAs should be done on an ongoing basis, not just at the end of a quarter or financial year.

• Temporary deficiencies (like non-submission of stock statements) should not lead to NPA classification unless there is doubt about recoverability.

6. Project Loans and Special Cases:

• For project loans (infrastructure, real estate, etc.), specific timelines and exceptions exist for classifying as NPA, especially if delays are beyond the control of the borrower.

NPA Classification

These rules are periodically updated by the RBI, and banks are required to follow the latest circulars and master directions for compliance.