Rbi asks banks to specify exact repayment due dates in loan contracts

The Reserve Bank of India (RBI) on Friday issued a series of clarifications to its existing asset classification guidelines and said banks must specify exact due dates for repayment in loan agreements.

Current standards stipulate that a loan becomes delinquent if it is not repaid by the due date set by the bank. RBI said it has observed that repayment due dates are sometimes not specifically mentioned in loan agreements, and instead a description of due dates is mentioned, leaving room for different interpretations.

“Now, exact loan repayment schedules, repayment frequency, break between principal and interest, examples of classification dates for Special Mention Accounts (SMA) and Non-Performing Assets (NPA) and must be clearly specified in the loan agreement and the borrower will be informed of this at the time of sanctioning the loan and also at the time of subsequent modifications, if any, of the sanctioning conditions or the loan agreement until full repayment of the loan,” he said.

Apart from that, RBI has ordered the banks to specify the exact date of the start of the repayment of the loans with moratorium. These instructions, RBI said, must be complied with at the earliest, but no later than December 31, 2021, with respect to new loans. However, for existing loans, banks must adhere to these guidelines as those loans come due for renewal or review.

The central bank said it has noticed some lending institutions reclassifying accounts classified as NPA to the standard asset class when paying interest only overdue and partial overdues. To avoid any ambiguity in this regard, RBI said that loan accounts classified as NPA can only be reclassified as standard assets if all arrears of interest and principal are paid by the borrower.

Current regulations also state that once an account is classified as non-performing, all interest accrued and credited to the income account in past periods must be reversed to the extent that it remains unrealized. On Friday, RBI clarified that if loans with a moratorium on interest payments become NPA after the end of the moratorium period, the capitalized interest corresponding to the interest accrued during this moratorium period does not need to be cancelled.

Meanwhile, in order to increase the level of borrower awareness, RBI said lenders will be required to place consumer education materials on their websites, explaining with examples, the concepts of late date, classification and upgrade SMA and NPA.

“Additionally, it also needs to be ensured that their front-line officers educate borrowers on all of these concepts, with respect to the loans they have used, at the time of loan sanctioning, disbursement or renewal. These instructions must be complied with as soon as possible, but no later than March 31, 2022,” he said.

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