Interest on NPA accounts

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suriya (Querist)
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08 November 2008 Please provide the interest rate chargebale on NPA account by a bank. Is there any maximum rate, over which bank can not charge ?
Next, what is the periodicity- monthly, quarterly or annual?
Further simple interest or compunding ?
Thanks for the prompt reply.
I would like to know if the old dues are now likely to be recovered or account is settled, what is the applicable rate of interest (maximum, if any)?

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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10 November 2008 NPA are those accounts in respect of which interest is overdue for more than 180 days.
In simple words, an asset (or a credit facility) becomes non-performing when it ceases to yield income. As a result, banks do not recognize interest income on these assets unless it is actually received. If interest amount is already credited on an accrual basis in the past years, it should be reversed in the current year’s account if such interest is still remaining uncollected.

Once an asset falls under the NPA category, banks are required by the Reserve Bank of India (RBI) to make provision for the uncollected interest on these assets.

But that does not mean the banks can not collect interest for future period. Only that they can not recognise it as income.

suriya

suriya (Querist)
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11 November 2008 Thanks for your prompt reply. I would like to know what is the applicable rate of interest (maximum, if any) in view of settlement of such an old NPA account coupled with its periodicity and manner (simple or compounding)?

suriya

suriya (Querist)
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