RBI Revised NPA Master Directions: Borrower-Wise Rule
Why in the news
The RBI issued revised Master Directions on classifying and recovering non-performing assets, aiming for international-style standards and clearer bank balance sheets from 1 April 2027.
Key facts
| Issue | Earlier practice | Revised rule |
|---|---|---|
| Classification unit | Facility-wise; some loans of a person could stay Standard | Borrower-wise; one default turns all facilities NPA |
| Upgrade to Standard | Could be partial | Entire arrears of interest and principal on every facility must be cleared |
| Identification | Human discretion possible | Automated IT systems mandatory |
| Timeline for NPA | Over 90 days overdue | Unchanged at 90 days |
- Effective date: 1 April 2027; gives banks time to upgrade software and adjust provisioning, since borrower-wise tagging may temporarily raise reported bad loans.
- Contagion rule: a default on one of several loans (home, car, business) taints all, because it signals weaker creditworthiness overall.
- No partial upgrades: clearing one account does not restore Standard status while others remain in default.
Concepts
- NPA: a loan where interest or principal repayment has stopped for a sustained period.
- Standard asset: a loan with regular on-time payments and no doubt about repayment ability.
- Evergreening: giving a fresh loan so the borrower can repay an old one and escape NPA tagging; automation aims to curb it.
Exam angle
- Date to remember: 1 April 2027.
- Shift: facility-wise to borrower-wise classification.
- Unchanged: 90-day norm; new: automated identification.