RBI tells banks to specify exact repayment due dates in loan contracts
Premium- RBI also directed banks to specify the exact date of commencement of repayment for loans that have a moratorium facility.
The Reserve Bank of India (RBI) on Friday issued a set of clarifications on its existing asset classification guidelines and said banks must specify the exact due dates for repayment in loan agreements.
The current norms state that a loan turns overdue if is not repaid on the due date fixed by the bank. RBI said it has observed that due dates for repayments are sometimes not specifically mentioned in the loan agreements, and instead a description of due dates is mentioned, leaving scope for different interpretations.
“Henceforth, the exact due dates for repayment of a loan, frequency of repayment, breakup between principal and interest, examples of special mention account (SMA) and non-performing asset (NPA) classification dates and shall be clearly specified in the loan agreement and the borrower shall be apprised of the same at the time of loan sanction and also at the time of subsequent changes, if any, to the sanction terms or loan agreement till full repayment of the loan," it said.
That apart, RBI directed banks to specify the exact date of commencement of repayment for loans that have a moratorium facility. These instructions, RBI said, shall be complied with at the earliest, but not later than 31 December 2021, in respect of fresh loans. However, for existing loans banks have to comply with these guidelines as and when such loans become due for renewal or review.
The central bank said it has noticed that some lending institutions upgrade accounts classified as NPAs to standard asset category upon payment of only interest overdues and partial overdues. In order to avoid any ambiguity in this regard, RBI said that loan accounts classified as NPAs may be upgraded as standard asset only if entire arrears of interest and principal are paid by the borrower.
The current regulations also say that once an account is classified as non-performing, the entire interest accrued and credited to income account in the past periods, must be reversed to the extent it remains unrealized. On Friday, RBI clarified that if loans have a moratorium on payment of interest become NPA after the moratorium period is over, the capitalized interest corresponding to the interest accrued during such moratorium period need not be reversed.
Meanwhile, in order to raise the level of awareness among the borrowers, RBI said lenders will have to place consumer education literature on their websites, explaining with examples, the concepts of date of overdue, SMA and NPA classification and upgradation.
“Further, it shall also be ensured that their front-line officers educate borrowers about all these concepts, with respect to loans availed by them, at the time of sanction, disbursal or renewal of loans. These instructions shall be complied with at the earliest, but not later than 31 March 2022," it said.
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