Criteria for Classification of Various Types of Credit Facilities
In line with the international best practices and to ensure greater transparency, the RBI has directed the banks to adopt the ‘90 days’ overdue’ norm for identification of NPAs from the year ending March 31, 2004.
Banks have been charging interest at monthly rests, from April 1, 2002. However, the banks should continue to classify an account as NPA only if the interest charged during any quarter is not serviced fully within 90 days from the end of the quarter.
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 also be treated as ‘out of order’. Further, any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.
The following criteria are to be applied for determining the status of various types of credit facilities:
(a) Term Loans: A term loan is treated as a non-performing asset (NPA) if interest and/or instalment of principal remain overdue for a period of more than 90 days.
(b) Cash Credits and Overdrafts: A cash credit or overdraft account is treated as NPA if it remains out of order as indicated above.
(c) Bills Purchased and Discounted: Bills purchased and discounted are treated as NPA if they remain overdue and unpaid for a period of more than 90 days.
(d) Securitisation: The asset is to be treated as NPA if 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.
(e) Agricultural Advances: A loan granted for short duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for two crop seasons and, a loan granted for long duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for one crop season.
(f) Credit Card Accounts: credit card account will be treated as non- performing asset if the minimum amount due, as mentioned in the statement, is not paid fully within 90 days from the payment due date mentioned in the statement as per Circular DBR.No. BP. BC.30/21.04.048/2015-16 dated July 16 2015. It is further suggested by RBI that banks should follow this uniform method of determining over-due status for credit card accounts while reporting to credit information companies (CIC) and for the purpose of levying of penal charges, viz., late payment charges, etc., if any.
As per the guidelines, “long duration” crops would be crops with crop season longer than one year and crops, which are not “long duration” crops would be treated as “short duration” crops. The crop season for each crop, which means the period up to harvesting of the crops raised, would be as determined by the State Level Bankers’ Committee in each State. Depending upon the duration of crops raised by an agriculturist, the above NPA norms would also be made applicable to agricultural term loans availed of by him.
The above norms should be made applicable to all direct agricultural advances as listed in the Master Direction on Lending to Priority Sector-Target and Classification dated July 7, 2016. In respect of all other agricultural loans, identification of NPAs would be done on the same basis as non-agricultural advances, which, at present, is the 90 days delinquency norm. In this context, attention of the Readers is also invited to Guidelines on Joint Lenders Forum and Corrective Action Plan providing the framework outlining a corrective action plan that will incentivise early identification of problem cases, timely restructuring of accounts which are considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts.