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Banks will be back to the usual way of recognising non-performing assets (NPA) and initiating normal recovery proceedings following the Supreme Court vacating its September 2020 interim order.

The earlier order had directed lenders that accounts that were not declared as NPA till August 31, 2020, shall not be declared as NPA till further orders.

‘Recognising NPAs’

Rajkiran Rai G, MD and CEO, Union Bank of India, and Chairman, Indian Banks’ Association, observed that banks are already recognising NPAs (where there was asset classification standstill) as proforma NPAs and have been proactively making provisions. “So, now only actual NPAs will get recognised at March-end in the book. Banks may have to make only incremental provisions in the fourth quarter. It will be back to normalcy. We will be able to go through our recovery process and all that,” said Rai.

Advantage for customer

The Union Bank chief noted that for a customer the advantage during the asset classification standstill period was that even though he was defaulting, it was not getting reported to the rating agencies and the credit information bureaus.

“Now the customer’s NPA status will be recorded everywhere. So, if a customer is defaulting, his rating may be impacted and banks may start normal recovery action.

“Till now, it has been a soft recovery effort because we have not actually marked the account as NPA,” he said.

Krishnan Sitaraman, Senior Director, Crisil Ratings, said the SC judgment clears the way for lenders to recognise NPAs as per the delinquency record of borrowers, which they had not been able to since the end of the moratorium period in August 2020.

Most lenders, however, had disclosed proforma NPAs and also made provisions against the same, which may limit the immediate impact on profitability.

“Standstill on recognition of NPAs had tied the hand of lenders and, consequently, impacted the credit discipline of borrowers.

“Withdrawal of the same will enable lenders to enforce various legal measures and support their recovery efforts,” said Sitaraman