To ensure proper clarity and uniformity for all lending institutions, new RBI Clarification on Prudential Norms on Income Recognition, asset classification and provisioning norms of October 1st 2021 certain aspects are being clarified herewith. The first clarification is:
(Effective from March 31st 2022)
• Loan accounts classed as non-performing assets (NPAs) can only be upgraded to 'standard' assets if the borrower pays all interest and principal arrears.
• Income recognition policy for loans with a moratorium on payment of interest. When loans with moratorium are granted, lending institutions should recognise interest income on an accrual basis for accounts that are classed as 'standard'. (This will be compared to the concept of "restructuring" in paragraph 1 of Annex-1 to the "Prudential Framework for Resolution of Stressed Assets" dated June 7th 2019.)
• According to present guidelines, once an account is classed as NPA, all interest accrued and credited to the income account in previous periods must be reversed to the extent that it remains unrealized.
• If loans with a moratorium on payment of interest become NPA after the moratorium period, the capitalized interest corresponding to the interest accrued during such moratorium period need not be reversed.
• The Consumer Education Lending institutions must provide consumer education literature on their websites clarifying the concepts of date of overdue, SMA and NPA categorization and upgradation and the front-line officers should also educate borrowers on all these concepts.