The RBI has allowed banks to give a moratorium on loan payments for up to six months and permitted a one-time restructuring of accounts to help borrowers weather pandemic-related stress. Because of this RBI has appealed to supreme court to allow banks to classify the loans as non performing (NPA). RBI warned , that the interim stay is effecting the nations financial system .
The steps taken by the RBI ensured that accounts that were normal prior to the introduction of the national lockdown at the end of March would not be listed as
NPAs if the borrowers used the moratorium, which allowed repayments to be postponed until the end of August but continued to accrue interest on the loans.
On 3rd September, Ashok Bhushan, R Subhash Reddy and MR Shah ( Supreme court bench of justices ) ordered bank to categorize those loans which haven’t yet categorized as NPA. SC Order to work with this way until next order.
What is Non performing asset (NPA)?
A non-performing asset (NPA) refers to a designation that is in default or in arrears for loans or advances. When principal or interest payments are late or missing, a loan is in arrears. If the lender finds the loan arrangement to be breached and the debtor is unable to fulfil his commitments, a loan is in default. NPAs put a financial burden on the lender; a large number of NPAs can suggest to regulators over a period of time that the bank’s financial health is in danger.
Normally the principle and interest is overdue for 90days in NPA.
Types of NPA
There are other types of NPA aswell but most common are:
Overdraft and cash credit accounts (OD / CC) have been out of order for more than 90 days.
Agricultural advances whose interest or principal instalment payments remain overdue for short-term crops over two crop / harvest seasons or overdue for long-term crops over one crop season.
Planned payment is overdue for more than 90 days on any other form of account
How does NPA work?
In most situations, when loan payments have not been made for a period of 90 days, debt is listed as nonperforming. Whilst 90 days is the norm, depending on the terms and conditions of each particular loan, the period of time spent can be shorter or longer. At some point during the duration of the loan or at its maturity, a loan can be listed as a non-performing asset.
How is NPA recorded?
Banks are expected to classify non-performing assets into one of three categories according to the length of non-performing assets: sub-standard assets, questionable assets, and asset losses. An asset listed as an NPA for less than 12 months is a sub-standard asset. An asset which has been non-performing for more than 12 months is a questionable asset. Loss assets are loans with losses that need to be entirely written off by the bank, auditor, or inspector identified.