What are NPAs and What Loan moratorium has to do with it? Know ‘here’

New Delhi: The Supreme Court has given an interim relief to people on the loan moratorium. The bank will not declare the loan NPA for two months. On Thursday, the Supreme Court said that if a bank loan account is not declared NPA i.e. non performing asset till August, then it should not be declared NPA for the next two months’.

What are NPAs?

A non-performing Asset (NPA) is a loan that is in default loan or non repayments of instalments of loan.  The loans are considered to become non-performing after being in default or installments are not paid for 90 days, but this can depend on the contract terms.

Non-performing assets are listed on the balance sheet of a bank or other financial institution. After a prolonged period of non-payment, the lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement.

If no assets were pledged, the bank might write-off the asset as a bad debt and then sell it at a discount to a collection agency.It is then recorded as a loss in the bank’s balance sheet and the amount of debt written off is reduced from the profit. The best example of it is the defaulters such as Nirav Modi, Vijay Mallya.

How  loan moratorium will  benefit you?

If you have taken a term loan from a credit card,  home loan or vehicle loan and are not able to give EMI in the Corona crisis, then by August 31, banks will not take any action on your default and will not declare your loan as NPA. Banks may levy penalty interest on default after 31 August, as the Reserve Bank has scrapped the loan moratorium facility. However,  banks will not be able to declare NPA on such loans for the next two months till October.

How will it go ahead?

Though the loan moratorium has extended now still you can get repeated messages, phone calls from the bank to repay the loan installment. During this time you can also be charged interest on late payment or interest. But till now the banks have not got clear instructions about this, so you have to talk to your bank and clear all the things.

The whole fiasco is about-

In the wake of the pandemic, the RBI issued a circular on 27 March, granting borrowers the post repayment  of installments for a period of three months. On 22 May, the RBI announced an extension of the three-month till 31 August. The new decision issued by SC has extended it for more than 2 months.

The hearing in the loan moratorium case will continue next week on 10 September. The government has submitted its affidavit in the Supreme Court on Monday on loan moratorium. The government has indicated that the moratorium can be extended for two years. But few sectors will get it.