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NPA as per RBI (in summary)

By The Summarizers
As per Reserve Bank of India (RBI), 
  • an asset, including a leased asset,
  • becomes NPA (non performing asset) when it ceases to generate income for the bank.

BEFORE 2014
Also, it was defined as 
  • a Credit Facility
  • in respect of which the interest / installment of principal 
  • has remained 'past due' for a specified period of time.
    • 'Past Due' means amount not been paid within 30 days.
And it becomes NPA, if amount not paid within 90 days.

FROM & AFTER 2014

As per the new guidelines (26/02/2014) of RBI, before a loan account turns into a NPA, banks are required to identify the stress into the account by creating 3 sub-categories under Special Mention Account (SMA) category.
SMA Sub-Categories 

# Revitalising Distress  Assets in the economy -- Guidelines on Joint Lender Forum (JLF) & Corrective Action Plan (CAP)
  • Banks are advised that as soon as an account is reported by any lender as SMA-2, they should mandatorily form a committee to be called "JLF".
  • "JLF" formation is optional in case of SMA-0.
  • Through "JLF", banks can explore various options to reduce the stress in the account.
  • "CAP" include various options like :- Rectification, Restructuring & Recovery. 
    • Rectification :- Obtaining a specific commitment from the borrower to let not slip the account into SMA status.
    • Restructuring :- This can be considered only when the borrower is not a wilful defaulter, i.e, there is no diversion of funds & frauds.
    • Recovery :- When above two options are not feasible, the JLF may decide the best recovery process to be followed.
The Last Lines :~

RBI issues guidelines time-to-time considering the economic situations in India. It can bring difficulties in the short term. But gradually, it benefits in medium term & long term. The movement in Stock Market is also based on RBI guidelines & policies, so its important to consider this.





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