Conversion of education loan account as NPA without notice

In Recovery Law
Sir Iam 2009 -2014 batch bds graduate taken education loan of 4L. i was in moratorium period till nov 2015,eventhen interest was levied. Though i was paying the EMIs then and now,on 7 feb 2016 i wrote a mail to SBI customer care for interest subsidy as i was from EWS and was in moratorium period. Within a week subsidy was given, last repayment of EMI was on jan 2016,on March 8 suddenly some unrealised interest was credited suddenly on April29 we recieved a call from the bank saying account has been made NPA without any notice. is the decision RIGHT? Whats the way out of it? kindly assit me sir

Answers (1)

73 votes
There is no provision of sending prior notice before declaring an account NPA. Following are the conditions when an account is declared NPA.
The assets of the banks which don’t perform (that is – don’t bring any return) are called Non Performing Assets (NPA) or bad loans. Bank’s assets are the loans and advances given to customers. If customers don’t pay either interest or part of principal or both, the loan turns into bad loan. According to RBI, terms loans on which interest or installment of principal remain overdue for a period of more than 90 days from the end of a particular quarter is called a Non-performing Asset.
 Example of NPA Implications of the NPAs on Banks Gross NPA and Net NPA and SARFAESI Act Reselling of NPAs Provisioning Coverage Ratio For every loan given out, the banks to keep aside some extra funds to cover up losses if something goes wrong with those loans. This is called provisioning. Provisioning Coverage Ratio (PCR) refers to the funds to be set aside by the banks as fraction to the loans.
Standard Asset- If the borrower regularly pays his dues regularly and on time; bank will call such loan as its “Standard Asset”. As per the norms, banks have to make a general provision of 0.40% for all loans and advances except that given towards agriculture and small and medium enterprise (SME) sector. However, if things go wrong and loans turn into bad loans, the PCR would increase depending up the classification of the NPA as discussed in next section.
Classification of the NPAs Banks are required to classify nonperforming assets further into three main categories (Sub-standard, doubtful and loss) based on the period for which the asset has remained non performing. This is as per transition of a loan from standard loan to loss asset as follows: If the borrower does not pay dues for 90 days after end of a quarter; the loan becomes an NPA and it is termed as “Special Mention Account”. If this loan remains SMA for a period less than or equal to 12 months; it is termed as Sub-standard Asset. In this case, bank has to make provisioning as follows: 15% of outstanding amount in case of Secured loans 25% of outstanding amount in case of Unsecured loans If sub-standard asset remains so for a period of 12 more months; it would be termed as “Doubtful asset”. This remains so till end of 3rd year. In this case, the bank need to make provisioning as follows: Up to one year: 25% of outstanding amount in case of Secured loans; 100% of outstanding amount in case of Unsecured loans 1-3 years: 40% of outstanding amount in case of Secured loans; 100% of outstanding amount in case of Unsecured loans more than 3 years: 100% of outstanding amount in case of Secured loans; 100% of outstanding amount in case of Unsecured loans If the loan is not repaid even after it remains sub-standard asset for more than 3 years, it may be identified as unrecoverable by internal / external audit and it would be called loss asset. An NPA can declare loss only if it has been identified to be so by internal or external auditors.

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