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Sunday, 17 May 2020

In the event of non-payment of loan, know this right

In the event of non-payment of loan, know this right

What is a personal loan?

Here's a guide
Simply put, it is an unsecured loan taken by individuals from a bank or a non-banking financial company (NBFC) to meet their personal needs.

Since a personal loan is an unsecured loan, therefore your credit history usually plays a significant role in the approval process.
An increasing number of consumers are now taking personal loans for their purchases, especially the big-ticket ones. They are also converting their purchases into equated monthly instalments (EMIs).

Personal loans help the households meet any shortfall they experience in buying a house or a car, in children's higher education, or even in cases of medical contingencies, among other things.

Here's a low down on personal loans to understand them better. 
Definition of 'Non Performing Assets'

Definition: 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.

Description: Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.

1. Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.

2. 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.”

Also See: Foreign Exchange Reserves, Balance of Payment, Base Rate

As you are aware, the Reserve Bank of India has, from time to time, issued a number of circulars containing instructions/guidelines to banks on matters relating to prudential norms on income recognition, asset classification and provisioning. In order to enable the banks to have all the existing operating instructions on the subject at one place, this Master Circular has been prepared.

2. It may be noted that all the instructions contained in circulars listed in Part A of the Appendix as well as in the relevant paragraphs indicated in Column 3 of Part B of the Appendix have been consolidated. We advise that this master Circular is a compilation of all the instructions contained in these circulars issued by the RBI, which are operational as on the date of this circular.

2.1 Non-performing assets

2.1.1 An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the interest and/ or instalment of principal has remained ‘past due’ for a specified period of time. The specified period was reduced in a phased manner as under:

.2.1 If any advance, including bills purchased and discounted, becomes NPA as at the close of any year, interest accrued and credited to income account in the corresponding previous year, should be reversed or provided for if the same is not realised. This will apply to Government guaranteed accounts also.

3.2.2 In respect of NPAs, fees, commission and similar income that have accrued should cease to accrue in the current period and should be reversed or provided for with respect to past periods, if uncollected.

Impractical Link

In the event of non-payment of loan, know this right