RBI clarifies perception over the definition of ‘out of order’ and ‘standard assets’ under Prudential Norms

RBI today clarified banks and other financial institutions about the definition of ‘out of order’, as clarified in the earlier circulars, shall be applicable to all loan products being offered as an overdraft facility, including those not meant for business purposes and/or which entail interest repayments as the only credits.

“The ‘previous 90 days period’ for determination of ‘out of order’ status of a CC/OD account shall be inclusive of the day for which the day-end process is being run”, it said.

In respect of lending institutions upgrading NPAs to ‘Standard’, the Central Bank said that it has been observed that some lending institutions upgrade accounts classified as NPAs to ‘standard’ asset category upon payment of only interest overdue, partial overdue, etc. In this regard, it was advised that loan accounts classified as NPAs may be upgraded as ‘standard’ assets only if entire arrears of interest and principal are paid by the borrower.

Further, it is clarified that the Asset Classification of loan accounts is to be borrower-wise and not facility-wise. Loan accounts shall be upgraded from NPA to standard asset category only upon repayment of entire arrears of principal and interest of all the credit facilities granted by the bank, it said.

Regarding, the up-gradation of accounts classified as NPA due to restructuring, non-achievement of date of commencement of commercial operations (DCCO), etc., the instructions as specified for such cases shall continue to be applicable, the circular said.

 It has been observed that some lending institutions upgrade accounts classified as NPAs to the ‘standard’ asset category upon payment of only interest overdue, partial overdue, etc. In order to avoid any ambiguity in this regard, it is clarified that loan accounts classified as NPAs may be upgraded as ‘standard’ assets only if entire arrears of interest and principal are paid by the borrower. With regard to the up-gradation of accounts classified as NPA due to restructuring, non-achievement of date of commencement of commercial operations (DCCO), etc., the instructions as specified for such cases shall continue to be applicable.

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

 The circular does not make any changes to the requirements related to reporting of information to CRILC, which will continue to be governed in terms of extant instructions for respective entities1.

NBFCs shall have time till September 30, 2022, to put in place the necessary systems to implement this provision. All other instructions of the Circular shall continue to be applicable as per the timelines specified therein.    “The circular does not, in any way, interfere with the extant guidelines on the implementation of Ind-AS by NBFCs”, RBI said.