Every day loans are taken by banks with the help of lakhs of people. Millions of loan accounts are in banks. These loans are taken for different purposes; some take loans for business, either building a house or for farming. Banks have also opened their coffers for giving loans. But loans become NPA very often. Do you know what are the rules of RBI and why does a loan become NPA? Let’s know.
Rules made by Reserve Bank of India are applicable to all banks and lending institutions. Banks and other non-banking financial institutions are bound by the rules of RBI. Whether it’s rules about opening an account in a bank or rules about giving and taking back loans.
The Reserve Bank also monitors the banks and protects the rights of consumers and banking institutions. For example, the declaration of NPA or defaulter status also is given as per prescribed RBI laws.
A loan becomes classified as non-performing asset (NPA)
Loan NPA is something most people have been hearing a lot. Booking NPA on loans was much talked about recently. NPA stands simply for non performing asset. Simply speaking means the asset which has not been active. When someone does not pay for a loan, the bank assumes that this loan is stuck. It is put in NPA.
When does a loan become NPA
According to the Reserve Bank of India, a loan is declared NPA (NPA Rules) if a payment installment remains unpaid in a bank for a period of 90 days. For other financial institutions other than banks, the period is maximum of 120 days. It is termed as stuck loan of the bank.
Having NPA is not good for the bank and the borrower
NPAs are never good for the banks because if there are NPA accounts more in number with a bank, it is not considered well with the bank. The bank has to face the consequence of asset shortage. NPAs are also not good for borrowers. It affects a loan taker as well.
CIBIL score thus deteriorates
If a person has given a loan, it is said that they have spoiled their credit history. Because then the CIBIL score also gets spoiled. If he did not pay his installment continuously for a period of three months, then under RBI rules, his account will be considered as Non-Performing Asset (NPA). So for such a condition, the CIBIL score goes very badly. Not easy getting loan approval later if the CIBIL score goes bad. Possibility of getting a loan in future now almost zeros out.
Types of NPA
Three types of NPA are there. NPA does not mean that there is loss of the loan. If the loan is not received for the first three months, account is declared as NPA. This is called sub-standard assets. When the loan is not recovered for a period of a year, then it is classified under doubtful assets. When there remains no hope of recovery of doubtful assets for NPA, it is clubbed under the category of loss assets.
Will auction once loan is not repaid
The loan will be auctioned by the bank itself under RBI guidelines. The bank gives a lot of time to pay off the loan. If someone defaults after a lot of time, the last option the bank has to recover a loan is auction. The bank does all this after sending countless reminders. Then the borrower’s property is auctioned for a place where the bank receives its money.
