What is the new policy of NPA for credit card loans?
The new RBI policy has given banks the authority to treat credit card defaults as bad loans. With the new policy in place, your credit card account will be treated as a non paying asset or NPA if you do not fully repay the minimum due amount within 90 days from the due date as mentioned in your credit card statement. This is a change from the current structure where banks take the date of the next billing statement while calculating the 90-day period. The banks continue to levy penal charges if the customer fails to make payment within three days of the due date of payment.
When a borrower doesn’t make principal and interest repayments, the loan account is declared a non-performing asset or NPA. Any loans which are more than 90 days overdue are usually classified as nonperforming assets by banks.
Loans of this type are considered nonperforming because the bank is no longer receiving a return on the investment made since the borrower is no longer repaying the principal or the interest on the loan. Once the defaulted loans (loans of any kind – credit card loan, home loan, mortgage loan, car loan etc.) are considered as NPA, any repayments made after classification will not be considered as income by the bank.
Banks usually have a provision allotted in the balance sheet to handle NPAs. The loan which has remained NPA for a period less than or equal to 12 months is called a substandard asset. An asset would be classified as doubtful if it remained in the sub-standard category for 12 months. A loss asset is one which is considered irrecoverable and of very little value even if there may be some recovery value.
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