Need Clarification on NPA

NPA when it ceases to generate income for the bank. This would mean that interest, which is debited to borrower’s account, has to be realised by the bank. An account has to be classified as NPA on the basis of record of recovery rather than security charged in favour of the bank in respect of such account. Thus, an account of a borrower may become NPA if interest charged to that particular borrower is not realised despite the account being fully secured.   

RBI has laid down various criteria for classification of various types of advances as NPA which are as under:

Term Loan : Interest and /or instalment of principal remain overdue for a period of more than 90 days.

One will have to determine the due date of interest and instalment. If either interest or instalment is overdue for more than 90 days then the account would become NPA. Interest or instalment, which is due as on 30th December, would be overdue for more than 90 days as on 31st March and the account would become NPA.

However, if the same was due on 31st December of the previous year, then the account would not become NPA as on 31st March.

Overdraft/Cash Credit : If an account remains out of order, it would become NPA. For this purpose an account would be treated as ‘out of order’ if:

i) The outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days or more, or

ii) Even if the outstanding in the account is less than the sanctioned limit/  drawing power, there are no credits in the account continuously for 90 days as on the date of the Balance sheet, or

iii) Credits in the account are not sufficient to cover interest debited during the same period.

Thus, as on 31st March, if any of the above criteria is satisfied, the account would be classified as NPA.

There may be a situation where say for example drawing power of an account is Rs.10 lacs, balance is Rs.8 lacs and there are no credits in the account for 90 days. Such account would be classified as NPA.

Bills Purchased/Discounted

If the bills purchased or discounted remains overdue for a period of more than 90 days from its due date.

Agricultural Advances: a loan granted for

i) Short duration crops will be treated as NPA, if the installment of principal or interest thereon remains overdue for two crop seasons.

ii) Long duration crops will be treated as NPA, if the installment of principal or interest thereon remains overdue for one crop season.

For the purpose of these 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. Thus an auditor will have to verify the nature/duration of crop circle and accordingly verify whether an agricultural account is NPA as on 31st March .

Other Credit Facility: In case of any other credit facility, if the amount to be received remains overdue for more than 90 days, then the account will be classified as NPA. Accounts with temporary deficiencies:

Even though criteria laid down for identification of an account as NPA are objective, an account should not be classified as NPA, if the deficiencies like non-submission of stock statement and, non-renewal of facility in the account are temporary in nature. RBI guidelines in this regard as under.

a) Drawing power is required to be arrived at based on the stock statement, which is current.

However, considering the difficulties of large borrowers, stock statements

relied upon by the banks for determining drawing power should not be older than three months.

The outstanding in the account based on drawing power calculated from stock statements older than three months, would be deemed as irregular. A working capital borrowal account will become NPA if such irregular drawings are  permitted in the account for a continuous period of 90 days even though the unit may be working or the borrower’s financial position is satisfactory.

Thus, if a borrower is allowed drawing on the basis of stock statement of September, the account will be classified as NPA as on 31st March.

b) Regular and adhoc credit limits need to be reviewed/ regularised not later than three months from the due date/date of ad hoc sanction. In case of  constraints such as non-availability of financial statements and other data from the borrowers, the branch should furnish evidence to show that  renewal/review of credit limits is already on and would be completed soon. In any case, delay beyond six months is not considered desirable as a general discipline. Hence, an account where the regular/ adhoc credit limits have not been reviewed/renewed within 180 days from the due date/date of ad hoc sanction will be treated as NPA.

Dear Mr. Vishal,

Thanks a lot for your immediate respond and sharing your views about NPA. However, again I request you to give me a clear picture on the following case.

For instance, a borrower availed a Mortgage Loan of Rs. 10 Lakhs for a tenure of 5 years, out of which he has paid his EMIs for the period of 24 months, continuously, and  failed to remit his EMIs on the following 3 months i.e., from July’2009 to September’2009. But again, he started paying from the month of October’2009 to February’2010 without any interruption. Although, he communicated to his Bank Manager that he’d adjust the overdue amount (Apprx. Rs. 85,000) on the successive months, the manager has sent the SARFAESI Notice by declaring his account as NPA.

As per RBI Guidelines, we understand that the account of any concern/individual can be declared as NPA by the banks when NO amount (Interest/Principle) is deposited by the borrower/guarantor in their account for the last 90 days (earlier it was 180 days) and the Overdue should be greater than or equal to Rs. 1 LAKH. But, in this case, the borrower has deposited the EMI amount in his account thru’ Cheque or NEFT regularly, except for the aforesaid period of 3 months, and the Overdue only is less than 1 Lakh.

Moreover, he never effected any Electronic Standing Instruction (SI) or ECS from his SB account. But, the Manager has effected the SI from borrower’s SB account (maintained with the same branch) without the borrower’s consent / knowledge. Later, we understand about the Manager’s intension that he was trying to show the borrower as ‘Defaulter’. While asking about this to the concerned manager, there was a dispute among the borrower and the manager. Also, the Manager added that the borrower’s overdue amount is around Rs. 1.4 Lakhs so that he has sent the Notice u/s 13(2); but refused to send the Amortization Schedule of borrower’s Loan A/C though he requested the same, many times.

As per RBI guidelines, we understand that ‘’Banks have a right to exercise lien under section 171 of the Indian Contract Act against the dues from constituents/customers. However, the banks CAN NOT exercise lien over the personal account of a customer on the ground that money was due to the bank in another account where he acts in a different capacity, if there is no agreement to that effect’’

Also, Is that been possible to get Stay/Interim order by filing an appeal u/s 17 with DRT before the possession has been taken by Banks? Else, Can the Borrower/Guarantor pay any partial or part amount ( i.e., 1/4^th or 1/3^rd of the total amount outstanding) and stop/hold/postpone the action u/s 13(4)?

So, kindly clarify on this matter and let me know how to deal with his case. Thanks!!

Please reply me on following question :-

Suppose I  took a loan from union bank of india, fatehabad ( haryana) before approx  2 years on 24-12-2009 under loan against property        (overdraft mortgage). upto one year my account run very well. i did good transactions and pay intt on time. but after one year my business was very down. so i was unable to do transactions and also delayed in pay intt. to bank. but i paid intt, in consecutive month. my account showed od from rs. 3000, 6000, 2000 etc.. for approx 5 quarter from 30-09-2010 to 30-09-2011 . but i deposited it consecutive month.   

               And finally  on 30-09-2011 my account was overdraft than limit with rs. 3363. bank declare my account NPA. And closed my account . But still i deposited rs. 32000/- in my account in the month of October.  bank is saying to pay whole loan amount rs. 5 lakhs just. but i am not capapble tp pay just now. bank says that otherwise they will possess my security home. which i mortgaged to bank. that is name my widow mother.  i want to perfrom my accont again. and in future i will do good transactions. Please reply  me in this situation what i should do. . can bank force me to pay whole loan amount immediatedly only in 2 years of loan under this loan scheme. Can bank reoperate my account . how ! please suggest me.

Dear Mr.Rahul,

In this situation, you please approach the bank and request them for regularisation of your account. However, it is the bank's discretion to accept your proposal or to go ahead under SARFAESI Act.

File complaint with Banking Ombudsman in your area and request him to intervene and help you to restructure the account and put pressure ob bank not to charge excessive overdue / penal interest. Under Lenders Liability of Fair practices code, the bank is duty bound to consider your request for debt restructure or One time settlement. Further, Bank cannot issue demand notice under 13(2) directly for entire loan amount. It has to issue a recall notice whereby you have an opportunity to switch account to another bank. Did bank make any written demand for over dues before classifying your account as NPA?? Banking Ombudsman will take note of all these flaws of the bank under Lender Liability of Fair Practices code and pressurise the bank to arrive at amicable settlement if you are genuinely interested in repayments regularly in future. Tell the Ombudsman that the bank cannot bully you just because they have special powers under Sarfaesi act.

Carefully read the RBI's circular on Fair Practices Code for Lender Liability and also BCSBI code which bank have to follow mandatorily. Try to put a spanner in the wheel to stop further strigent action by insensitive bank officials who generally behave like zamindars when it comes to small borrowers. If bank issued Sarfaesi act 13(2) notice, you should stop making any payment to bank till a negotiated settlement is done in writing. You insist that your account should be upgraded to standard if you are willing to clear arrears of Principal and interest.

Banking Ombudsman can intervene if when Sarfaesi act notice is issued for failure of bank under Lenders liability of Fair Practises code.

File a stay application at DRT. Almost every quarter, there is a Lok Adalat held at DRT. Try to arrive at a settlement at DRT Lok Adalat. 

Bank / F I can classify loan a/c as NPA if the interest or principal defaulted for more than 90 days, irrespective of the defaulted amount due. Hence even if the defaulted amount was less than Rs.1 lakh, no exemption. But if the total due amount principal + interest is less than Rs.1 lakh, then SARFAESI cannot be initiated.