RBI tightens bad loan rules to align with global norms
The Reserve Bank of India (RBI) has revised its rules for classifying bad loans, or Non-Performing Assets (NPAs), to align with globally accepted standards. Effective April 1, 2027, the new Master Directions stipulate that if one loan of a borrower is classified as an NPA, all other loans of that borrower will also be considered NPAs. An NPA borrower will only be reclassified as a 'standard asset' upon repayment of all outstanding interest and principal across all credit facilities. The 90-day overdue rule for initial NPA classification remains unchanged, and banks are mandated to establish automated systems to identify NPAs.
Key Points
- The Reserve Bank of India (RBI) has revised its bad loan classification rules to align with global standards.
- Effective April 1, 2027, if one loan of a borrower becomes an NPA, all other loans of that borrower will also be classified as NPA.
- A borrower will only be considered a 'standard asset' after repaying all arrears of interest and principal across all credit facilities.
- The existing 90-day overdue rule for classifying a loan as NPA remains unchanged.
- Banks are now required to establish automated systems to identify Non-Performing Assets (NPAs).
Exam Facts
- The revised rules for bad loan classification are effective from April 1, 2027.
- Non-Performing Assets (NPA) are classified if a loan is 90 days overdue.
- The new norms require automated systems for NPA identification.
- The changes are part of the RBI's Master Directions.
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