supreme-court-order-on-npas-is-causing-problems-rbi-summary

Context: The RBI told the Supreme Court recently that it is facing “great difficulties” with the court’s interim order against declaring as non-performing assets (NPAs) accounts found perfectly good till August 31, 2020.

Background:

  • On September 3, the  Supreme Court had, as an interim measure considering the hardships of the pandemic and moratorium, directed that “accounts which were not declared NPA till August 31, 2020, shall not be declared NPA till further orders.
  • The recently announced scheme aims to pay back the difference in the compound interest and simple interest charged during moratorium for eight categories of loans worth up to ₹2 crores.

Non Performing Asset:

  • A non-performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
  • NPAs can be classified as a substandard asset, doubtful asset, or loss asset, depending on the length of time overdue and probability of repayment.
  • Substandard assets: Assets that have remained NPA for a period less than or equal to 12 months.
  • Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
  • Loss assets: As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.”

Source: TH