If you are wondering what the new guidelines issued by the RBI are regarding loan accounts, repayments, NPA (Non Performing Assets) status and its impact on you as a borrower, read this conversation to know more.

Suraj: “Hello Uncle, my long time dream of owning a car is coming true. I have recently taken a Car Loan from a reputed financial institution.”

Uncle: “That’s great. Congratulations. But, now that you have taken a loan I hope you are aware of the new guidelines from the RBI regarding NPAs.”

Suraj: “I am afraid I am not aware, what is an NPA?”

Uncle: “NPA is a non-performing asset. These are those borrower accounts in which repayment has remained overdue for a period of 90 days or more.”

Suraj: “Oh, I see. Can you tell me more about these new guidelines, please?”

Uncle: “Sure. You see, its important that you make timely repayments so as to keep your credit scores healthy. This helps you avail loans in the future. Also, remember that prospective employers also check the credit history as an employee with a good credit history and financial performance is unlikely to indulge in any form of illegal corporate activities and also reflects that he would be responsible at work. Those who have been irregular with repayments, will now need to become more vigilant if they wish to avail other forms of financial credit from any lender. Let me better explain the impact of these new rules using the following scenarios:

Scenario A: If you are regular and punctual in the repayment of all your EMIs, then there is no impact on you. Your account will continue to remain as a ‘Standard Asset’ which will help you maintain a healthy credit score. This is the best situation for you to be in.

Scenario B: Now, let us assume you have missed one or two repayment due dates of your new car loan. In such a situation, your account gets categorized as a Special Mention Account (SMA). There are 3 sub-categories of SMA based on the overdue timelines which is known as Days Past Due (DPD); SMA 0 - upto 30 days, SMA 1 - more than 30 upto 60 days, SMA 2 shall be more than 60 upto 90 days. So don’t miss a single EMI, so that your account does not get classified in any of the SMA sub categories.

Scenario C: Now suppose your interest or principal remains overdue for a period of 90 days or more, your loan account will be classified as a Non-Performing Asset (NPA). In this case, as per the new RBI guidelines, you have to pay the entire overdue amount (entire arrears of interest and principal) to upgrade your loan account status from NPA to Standard asset category. Partial payment, such as payment of only interest or only one installment, shall not result in the upgradation of your loan account.

The failure to upgrade your loan account from NPA to standard may also lead to the lender taking legal action which may include taking-over the rightful possession of your car and auctioning it to recover the loan amount. Also remember, if a loan account is categorised as NPA, any other loan in your name with the lender will be considered NPA too.

Suraj: “Thank you Uncle for explaining this. I now properly understand the importance of repaying all the EMIs well before the due date so that I maintain a healthy credit score. This will help me when I need to avail a loan in future too.

For more information or other related queries, consult your loan advisor, contact the HDBFS Customer Support team or visit your nearest HDB branch.