CLASSIFICATION OF LOAN ACCOUNT/CREDIT FACILITY AS SMA & NPA

1. OBJECTIVE

This policy aims to create awareness among customers regarding the classification of their loan accounts/credit facilities as Special Mention Accounts (SMA) and Non-Performing Assets (NPA). The objective is to ensure transparency and help borrowers maintain financial discipline by understanding the implications of delayed repayments and the importance of regular servicing of loans.

2. APPLlCABlLlTY:

This policy applies to all retail, SME, and corporate borrowers availing of any credit facilities from the NBFC/institution

3. REGULATORY FRAMEWORK:

The policy is formulated in line with the guidelines issued by the Reserve NBFCof India (RBI) circular no. RBI/2021-2022/125 DOR.STR.REC.68/21.04.048/2021-22 on 'Prudential norms on Income Recognition; Asset classification and Provisioning (IRCAP), pertaining to Advances — Clarifications' on November 12, 2021, and i clarifications issued vide circular dated February 15, 2022.

4.DEFINITIONS:

• 4.1 SPECIAL MENTION ACCOUNT (SMA):
  • Loan accounts showing signs of incipient stress, before slipping into the NPA category, are classified as SMA. The classification is based on the overdue status of the principal or interest.
    CLASSIFICATION AS SPECIAL MENTION ACCOUNT (SMA) AND NON-PERFORMING ASSET (NPA) The below Illustration covers the concepts of date of overdue, classification as Special Mention Account ("SMA") and Non-performing Asset (NPA), upgradation of loan account etc.

    SMA Sub-categories	Basis for classification — Principal or interest payment or any other amount wholly or partly overdue
    SMA-0	Up to 30 days
    SMA-1	More than 30 days and up to 60 days
    SMA-2	More than 60 days and up to 90 days
    NPA	More than 90 days

    Ac dingly, the date of SMA/NPA sha I reflect theassetclassification status of an acqount at the day-end of that calendar date:
    An illustration of such classification is given below.

    Classification as:	Scenario I	Scenario Il
    Original Due Date	5 April 2022	2 April 2022
    SMA 0	5 April 2022 end of day	2 April 2022 end of day
    SMA 1	5 May 2022 end of day	2 May 2022 end of day
    SMA 2	4 June 2022 end of day	1 June 2022 end of day
    NPA	4 July 2022 end of day	1 July 2022 end of day

• 4.2 NON-PERFORMING ASSET (NPA)

  A Loan account is classified as NPA if interest and/or instalment of principal remains overdue for more than 90 days from the due date. Customers classified as NPAs may be upgraded as 'standard' only if entire arrears of interest and principal are paid by the customer, till the present date with regards to upgradation of accounts classified as NPA due to restructuring, non-achievement of date of commencement of commercial operations (DCCO), etc., the instructions as specified for such cases shall continue to be applicable.
  For e.g. if a customer is classified as NPA on 4 July 2022 with an overdue of Rs. 50,000/-, the customer will be upgraded to standard only after receipt of full overdue amount.
  IMPACT ON THE CREDIT SCORE: As the classification of loan accounts as SMA/NPA is getting reported to the credit information bureaus such as Transunion CIBIL, CRIF Highmark , Experian & Equifax , the same will affect the credit score of the borrower/guarantor.

5.CUSTOMER COMMUNICATION:

• a. Customers shall be notified in Email when their account is classified as NPA.
• b. The communication shall include: Status of the loan account. ii. Total overdue amount iii. Days past due (DPD) iv. Consequences of continued default (e.g. impact on credit score, legal actions, recovery proceedings).

6. IMPACT OF NPA CLASSIFICATION:

Customers are made aware that classifications as NPA may result in
a. Reporting to Credit Information Companies (CICs) such as CIBIL.
b. Ineligibility for further credit facilities.
c. Initiation of recovery proceeding under SARFAESI Act and other applicable laws.
d. Increase in penal interest or other charges as per loan agreement.
Example: If due date of a loan account is March 31, 2022, and full dues are not received before the lending institution runs the day-end process for this date, the date of overdue will be March 31, 2022. If it continues to remain overdue, then this account Will get tagged as SMA-I upon running day-end process on April 30, 2022 i.e., upon completion of 30 days of being continuously overdue. Accordingly, the date of SMA-I classification for that account will be April 30, 2022. Similarly, if the account continues to remain overdue, it will get tagged as SMA-2 upon running day end process on May 30, 2022 and if continues to remain overdue further, it will get classified as NPA upon running day-end process on June 29, 2022.

7.RESOLUTlON MECHANISMS:

The NBFC encourages borrowers to face genuine financial difficulties to:
• Proactively contact the branch/ relationship manager.
• Explore settlement/ recovery_pptipns offered by the NBFC.

8.DISPLAY & DISSEMINATION', s own Loan

• This policy shall be made available on the NBFC's official website.
• Key points shall be highlighted in the Loan Sanction letter and loan agreement.
• Frontline staff shall be trained to educate customers about NPA classifications.

9.REVlEW OF POLICY:

• This policy will be reviewed annually or as and when there are changes in regulatory guidelines.

NOTE: NBFCs use these terms to denote principal / interest / any charges levied on the loan account as under:

• 1. DUE: Means the principal / interest / any charges levied on the loan account which are payable within the period stipulated as per the terms of sanction of the credit facility.
• 2. OVERDUE: Means the principal / interest / any charges levied on the loan account which are payable but have not been paid within the period stipulated as per the terms of sanction of the credit facility. In other words, any amount due to the NBFC under any credit facility is 'overdue' if it is not paid on or before the due date as contracted between the NBFC and its customer. Borrower accounts are flagged as overdue as part of the day-end processes for the due date, irrespective of the time of running such processes.