NBFCs get an additional 6 months to keep the system ready to implement NPA standards

The Reserve Bank of India (RBI) has given financial firms an extension until September 30, 2022 for systems to be ready to implement the rule that bad debts cannot be upgraded as assets “standard” only when all arrears of interest and principal are paid. In November 2021, RBI had given until March 31, 2022 to implement the rule.

Mahesh Thakkar, Chief Executive of the Financial Industry Development Council (FIDC), said: “It is good for the industry as the financial companies had asked for an extension. The end of the financial year was approaching (March 2022), so businesses will not be negatively affected. . NBFCs will be able to supply, realign and also educate customers.”

“There are issues like keeping small accounts out of this scope of this rule that still need to be resolved,” he added.

Clarifying issues on asset recognition for lenders, including banks and financial firms, RBI in a notice said the definition of “out of order” will apply to all loans offered as an overdraft facility. This includes overdrafts not intended for business purposes and also those which result in interest repayments as only credits.

The “previous 90 day period” for determining the “out of service” status of a cash credit and overdraft account will include the day for which the end of day process is performed.

In addition, where borrowers have more than one credit facility with the lender, they must repay all arrears of interest and principal for all credit facilities to move the non-performing asset account to the category standard asset.

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