Loan accounts are flagged SMA/NPA at day-end based on continuous overdue days (NPA after 90), and an NPA can return to 'standard' only after the borrower clears the entire arrears of interest AND principal. (RBI/2021-22/125, dated November 12, 2021.) It applies to all commercial banks (incl. sfbs, labs, rrbs; excl. payments banks). Effective: Mostly immediate; NPA-on-overdue-interest from March 31, 2022.
This clarification reshaped how every LAP account is tracked through delinquency and recovery, and it ended a common leniency. RBI harmonised IRACP norms across all lenders, with the rules applying to all loans including retail, regardless of exposure size.
First, loan agreements must specify exact due dates, repayment frequency, the principal/interest breakup and illustrative SMA/NPA classification dates — communicated at sanction and at every change. Second, classification is a day-end process. An account is flagged overdue at the day-end of the due date; it becomes SMA-1 after more than 30 days continuously overdue, SMA-2 after more than 60, and NPA after more than 90 — each tagged at the day-end of that calendar date. RBI's own worked example: a 31 March due date unpaid becomes NPA at the day-end run on 29 June.
The most consequential change is upgradation. Some lenders were upgrading NPAs back to 'standard' on payment of only interest or partial dues. RBI clarified that an NPA may be upgraded to standard only if the entire arrears of interest and principal are paid. Partial payment no longer cures an NPA. (Restructuring/DCCO cases follow their own rules.)
The circular also tightened the 'out of order' test for cash credit/overdraft, modified NPA classification for overdue interest from 31 March 2022, and required lenders to publish consumer-education material explaining overdue, SMA, NPA and upgrade concepts. For a LAP book, this drives system logic for day-end tagging and, critically, collections strategy — because clearing only part of the arrears will not upgrade the account.
No. Since this clarification, an NPA can be upgraded to 'standard' only when the entire arrears of both interest and principal are paid. Partial payment does not cure it.
At the day-end process after more than 90 days of continuous overdue. RBI's example: a 31 March due date unpaid becomes NPA at the 29 June day-end run.
Yes. The SMA/NPA classification rules apply to all loans including retail, irrespective of the size of exposure.
Exact due dates, repayment frequency, principal/interest breakup and example SMA/NPA dates must be stated and communicated at sanction and on any change.
Yes. NPA classification based on overdue interest applied at rests takes effect for accounts becoming overdue on or after 31 March 2022.