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The Reserve Bank of India (RBI) has allowed some relaxation in the stricter prudential norms announced for all lenders, including NBFCs, on November 2021, by extending the time till September 2022 to implement the guidelines regarding upgrading an NPA account as standard but upon clearing all dues. In a circular issued on November 12, 2021, the monetary authority had given time till December 31, 2021 to implement all the stricter prudential norms.

Following representation from NBFCs, in a revised circular issued on February 15, 2022, the central bank said ‘the new circular does not, in any way, interfere with the extant guidelines on the implementation of Ind-AS by NBFCs... loan accounts classified as NPAs may be upgraded as 'standard' asset only if the entire arrears of interest and principal are paid by the borrower. (Also), NBFCs shall have time till September 30, 2022 to put in place the necessary systems to implement this provision.’

The November 12, 2021 circular was an improvement on its October 1, 2021 circular on the prudential norms on income recognition, asset classification and provisioning pertaining to advances, wherein the RBI had prevented all types of lenders from upgrading an NPA account after getting only interest dues cleared. This was issued after the central bank observed that some lenders were upgrading NPA accounts to standard on payment of only interest overdues, partial overdues, etc.

To avoid any ambiguity in this regard, the apex bank had said it is clarified that loan accounts classified as NPAs may be upgraded as a standard account only if the entire arrears of interest and principal are paid by the borrower. The revised circular also said the definition of 'out of order', as clarified in the November 2021 circular, shall be applicable to all loans offered as an overdraft facility, including those not meant for business purposes and/or which entail interest repayments as the only credits.