What is the criteria to declare a loan as NPA?
According to RBI guidelines, a Non -Performing Asset (NPA) is a loan or an advance where
interest and/or instalment of principal remains overdue for a period of more than 90 days in respect of a term loan. In case of Overdraft/Cash Credit (OD/CC), it will be when the account becomes ‘out of order’.
RBI says “an account should be treated as ‘out of order’ if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as ‘out of order’.”
In case of derivative transactions, NPA classification will be done if the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.
In other cases, NPA classification will be done if the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, the instalment of principal or interest there on remains overdue for two crop seasons for short duration crops, the instalment of principal or interest there on remains overdue for one crop season for long duration crops,
the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction undertaken in terms of guidelines on securitisation dated February 1, 2006.
RBI also states that banks should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter.
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