Banks typically declare a loan as a non-performing asset (NPA) if the borrower fails to repay the loan for a specified period of time, usually 90 days or more. This means that if a borrower fails to make timely payments of principal or interest on their loan for 90 days or more, the loan can be classified as an NPA. Usually it is three consecutive EMI’s, in case if the borrower pays one EMI in-between then banks cannot classify the account as NPA but at the same time banks can levy huge penalty on the borrower for skipping the EMI’s.
Once a loan is classified as an NPA, banks have to follow certain guidelines and take steps to recover the loan, such as initiating legal action, restructuring the loan, or taking possession of the collateral provided by the borrower.
It is important for borrowers to be aware of the loan repayment schedule and make timely payments to avoid their loan being classified as an NPA. Borrowers can also approach their bank to discuss repayment options if they are facing financial difficulties and cannot make timely payments.
What are legal measures taken by banks?
If a borrower defaults on loan repayment, the bank may take the following legal measures:
1. Issuing legal notices: The bank may issue legal notices to the borrower asking them to repay the outstanding loan amount along with any interest or penalty.
2. Reporting to credit bureaus: If the borrower fails to repay the loan, the bank may report the default to credit bureaus, which will impact the borrower’s credit score and make it difficult for them to obtain credit in the future.
3. Taking legal action: The bank may take legal action against the borrower to recover the outstanding loan amount. This may include filing a recovery suit in court, attaching the borrower’s assets, or initiating insolvency proceedings.
4. Blacklisting: In extreme cases, the bank may blacklist the borrower, which means they will not be able to obtain any loans from any bank or financial institution in the future.
It is important for borrowers to repay their loans on time to avoid legal action by the bank and negative impacts on their credit score. If borrowers are facing financial difficulties, they should approach the bank to discuss repayment options and seek help to make changes in the repayment schedule to avoid defaulting on their loan.
Can the NPA account be regularised again and does RBI permit the same?
The RBI guidelines provide an option for the regularization of loans even after they have been classified as non-performing assets (NPAs).
If a borrower is unable to make payments on a loan and the loan becomes an NPA, the bank may provide the borrower with an opportunity to regularize the loan by negotiating a repayment plan. The borrower must be able to demonstrate their ability to make payments on the loan as per the negotiated repayment plan.
It is important to note that the specifics of loan regularization can vary by bank and by the type of loan, and the RBI guidelines provide only broad guidance on the matter. Additionally, the bank may take legal action to recover the loan if the borrower is unable to make payments as per the repayment plan, and such action may result in additional costs for the borrower. Therefore, if you are dealing with an NPA situation, it is advisable to seek specific legal advice from a lawyer.
Steps to take to regularise the NPA account?
If you have failed to repay a loan for 90 days or more and your loan has been classified as a non-performing asset (NPA), you may be able to regularize the loan by taking the following steps:
Contact the bank: The first step is to contact the bank and explain your situation. You should be honest about why you were unable to make payments on the loan and provide any relevant documentation that supports your case.
Negotiate a repayment plan: You may be able to negotiate a repayment plan with the bank. This could involve restructuring the loan, extending the repayment period, or reducing the interest rate. Make sure that you understand the terms of the repayment plan and that you are able to make the payments on time.
Make payments on time: Once you have negotiated a repayment plan, it is important to make the payments on time. This will help to rebuild your credit score and demonstrate to the bank that you are committed to repaying the loan.
Keep in touch with the bank: If you experience any difficulties in making the payments, it is important to keep in touch with the bank and let them know what is happening. They may be able to work with you to find a solution.
Frequently Asked Questions
How do banks classify NPAs?
Banks classify NPAs into different categories based on the length of time the loan has been overdue. Loans that are overdue for 90 days or more are classified as NPAs.
How does RBI classify an NPA account?
The Reserve Bank of India (RBI) has guidelines for classifying non-performing assets (NPAs) based on the length of time the loan has been overdue. The guidelines are as follows:
Sub-standard Assets: A sub-standard asset is an NPA that has been overdue for 90 days or more. In this category, the bank must make provisions of 15% of the total outstanding amount.
Doubtful Assets: A doubtful asset is an NPA that has been overdue for more than 1 year. In this category, the bank must make provisions of 25% of the total outstanding amount.
Loss Assets: A loss asset is an NPA that cannot be recovered. In this category, the entire outstanding amount must be written off.
It is important to note that the RBI guidelines are subject to change and may differ for specific types of loans or for specific circumstances. Additionally, different banks may have their own internal guidelines for NPA classification that may be more stringent than the RBI guidelines.
Can NPAs be resolved?
Yes, NPAs can be resolved through various methods such as restructuring the loan, selling the loan to a debt recovery agency, or through insolvency and bankruptcy proceedings.
What happens to the borrower’s credit score when a loan becomes an NPA?
When a loan becomes an NPA, it can have a negative impact on the borrower’s credit score. This can make it more difficult for the borrower to obtain credit in the future.
Can a borrower be held responsible for an NPA if they are unable to repay the loan?
Yes, the borrower can be held responsible for an NPA if they are unable to repay the loan. In some cases, the bank may take legal action to recover the loan, such as by seizing assets or garnishing wages.