How to Convert NPA Account to a Normal Account?

When you fail to pay your principal or interest for over 90 days, it is called a non-performing asset (NPA). You may not be able to repay the loan and you might wonder how to convert NPA account to normal account . There are various ways to convert your NPA account to regular account. 

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If you are wondering can an NPA account become regular, below are some ways:

• One Time Settlement:

If you are not able to repay the loan the bank may give you the option of a one-time settlement. In this process, you have to repay a bulky amount of loan at once. The bank may waive off a portion of your interest considering it as a loss. 

• Restructuring of Loan:

Bank may give you an option of restructuring the loan if you are not able to pay the loan at a stretch. This means the bank has extended the period of repaying your loan. In some cases, the bank also gives the option of repaying the loan all at once if the financial condition improves, but this is only for special cases.

• Converting unsecured loans to secured:

Getting unsecured loans means the bank does not possess any asset which the borrower has mortgaged. The bank can therefore ask the borrower to convert the unsecured loan to a secured one by mortgaging an asset. This helps to reduce the EMI.

• Deferring the payment:

The bank may postpone the installments for some time till the borrower's financial condition has not improved. For this option, the borrower must approach the bank beforehand and tell the bank about the financial condition.

These are some processes on how to convert NPA account to normal account.

Hi there. If your loan account has been demoted to an NPA one, and you’re wondering how to turn it back to a normal account, keep reading. I have been working in the home loan sector for a decade and have enough experience to help you out. Also, I believe a lot of you must be wondering whether can NPA account be restructured or not. Don’t worry, you’ll find all the answers related to the subject here.

Can NPA Account be Regularised?

Yes, it is possible to turn a NPA or Non-Performing Asset into a normal account. But before I tell you the way to do so, let me shed some light on NPA accounts.

As you can assess from the full form of NPA, this type of account doesn’t contribute as an asset to the lending institution, such as a bank. An account is made NPA when principal or interest hasn’t been paid for 90 days or 3 months. 

Now, moving towards the process of converting an NPA account into a standard asset account, you need to pay the entire dues of interest and principal as a borrower. If you only clear off the dues of the interest or the principal alone, your account won’t be upgraded to a normal one. 

So, this is how you can change your account from NPA to a standard one. I hope this answer helps you.

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In the case of borrowers having multiple credit facilities from a lending institution, loan accounts can only be upgraded from a non-performing asset (NPA) to a standard asset category or a normal account upon repayment of all interest and principal arrears pertaining to all credit facilities.

• The RBI's clarification of its November 2021 circular on "Prudential Norms on Income Recognition, Asset Classification and Provisioning" supports this.

• This indicates that the lender will classify the entire exposure to a borrower as non-performing if the borrower has two credit facilities, one of which is standard or normal and the other non-performing. Only after regularising the non-performing account is this exposure upgrade possible.

• Because of the consequences for provisioning, banks requested that the RBI permit them to treat the two risks independently.

• The RBI noted in its November 2021 circular that certain lending institutions upgrade accounts that are categorised as NPAs to the "standard" asset category upon payment of only interest that is past due and partial payment that is past due.

• The central bank had made it clear that loan accounts categorised as NPAs may only be upgraded as "standard" assets if all outstanding interest and principal are paid by the borrower in order to avoid any ambiguity in this respect.

The instructions that were provided for such circumstances shall still be valid with regard to upgrading accounts that were previously classified as NPA due to restructuring or failure to meet the date of start of commercial operations (DCCO).

The RBI clarified that the day for which the day-end process is being run must be included in the "previous 90 days period" for evaluation of an account's status as "out of order."

I hope now you understand

how to convert NPA account to normal account.