Special provision regarding interest on bad and doubtful debt of specified financial institution

Special provision regarding interest on bad and doubtful debt of specified financial institution.

42. (1) The provisions of section 56 shall apply in the case of every public financial institution, scheduled bank, State Financial Corporation and State Industrial Investment Corporation, if its income from interest is related to following categories of bad or doubtful debts:––

(a) in relation to a loan or advance, where,––

(i) interest or instalment of principal remains overdue for a period of more than one hundred and eighty days; or

(ii) the account remains out of order in respect of an overdraft or cash credit; or

(iii) the bill remains overdue for a period of more than one hundred and eighty days in the case of bills purchased and discounted; or

(iv) the instalment of principal or interest thereon remains overdue for two crop seasons for short duration crops; or

(v) the instalment of principal or interest thereon remains overdue for one crop season for long duration crops; or

(vi) the amount of liquidity facility remains outstanding for more than one hundred and eighty days for a securitisation transaction undertaken in terms of the Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021; or

(vii) in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of one hundred and eighty days from the specified due date for payment; and

(b) in relation to an account, where,––

(i) a working capital borrowal account with irregular drawings for a continuous period of one hundred and eighty days even though the unit may be working or the borrower's financial position is satisfactory and for this purposes the outstanding in the account based on drawing power calculated from stock statements older than six months would be deemed as irregular; or

(ii) the regular or ad hoc credit limits have not been reviewed or renewed within one hundred and eighty days from the due date or date of ad hoc sanction; or

(iii) there is erosion in the value of security and the realisable value of the security is less than 50% of the value assessed by the bank or accepted by Reserve Bank of India at the time of last inspection; or

(iv) the realisable value of the security, as assessed by the bank or approved valuers or Reserve Bank of India is less than 10% of the outstanding in the borrowal accounts.

(2) The provisions of section 56 shall apply in the case of every public company, where its income by way of interest pertains to the following category of bad and doubtful debts:––

(a) (i) doubtful asset, that is, a debt which has remained a non-performing asset of the nature specified in sub-clause (ii) for a period exceeding two years;

(ii) non-performing asset referred to in sub-clause (i) shall be the following:––

(A) an asset, in respect of which, interest has remained overdue for a period of more than one hundred and eighty days;

(B) a term loan (other than the one granted to an agriculturist or to a person whose income is dependent on the harvest of crops) inclusive of unpaid interest, when the instalment is overdue for a period of more than one hundred and eighty days or more or on which interest amount remained overdue for a period of more than one hundred and eighty days;

(C) a demand or call loan, which remained overdue for a period of more than one hundred and eighty days from the date of demand or call or on which interest amount remained overdue for a period of more than one hundred and eighty days;

(D) a bill which remains overdue for a period of more than one hundred and eighty days;

(E) the interest in respect of a debt or the income on receivables under the head 'other current assets' in the nature of short-term loans or advances, which facility remained overdue for a period of more than one hundred and eighty days;

(F) any dues on account of sale of assets or services rendered or reimbursement of expenses incurred, which remained overdue for a period of more than one hundred and eighty days;

(G) the lease rental and hire purchase instalment, which has become overdue for a period of more than one hundred and eighty days;

(H) a term loan granted to an agriculturist or to a person, whose income is dependent on the harvest of crops, if the instalment of principal or interest thereon remains unpaid––

(I) for two crop seasons beyond the due date if the income of the borrower is dependent on short duration crops; or

(II) for one crop season beyond the due date if the income of the borrower is dependent on long duration crop;

(I) in respect of loans, advances and other credit facilities (including bills purchased and discounted), the balance outstanding under the credit facilities (including accrued interest) made available to the same borrower or beneficiary when any of the above credit facilities becomes non-performing asset; and

(b) loss asset, that is, an asset which has been identified as loss asset and considered as uncollectible but has not been written off by the assessee.

(3) For the purposes of this rule––

(a) an overdraft or cash credit account shall be treated as "out of order" if––

(i) the outstanding balance in the overdraft or cash credit account remains continuously in excess of the sanctioned limit or drawing power for one hundred and eighty days; or

(ii) the outstanding balance in the overdraft or cash credit account is less than the sanctioned limit or drawing power but there are no credits continuously for one hundred and eighty days, or the outstanding balance in the overdraft or cash credit account is less than the sanctioned limit or drawing power but credits are not enough to cover the interest debited during the previous one hundred and eighty days period;

(b) "long duration crop" means crop with crop season longer than one year;

(c) "public company" means a company,––

(i) which is a public company within the meaning of section 2(71) of the Companies Act, 2013 (18 of 2013);

(ii) whose main object is carrying on the business of providing long-term finance for construction or purchase of house in India for residential purposes; and

(iii) which is registered under section 29A of the National Housing Bank Act, 1987 (53 of 1987) or in accordance with the Housing Finance Companies (NHB) Directions, 1989 or Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021 issued by the local Government.

(d) "short duration crop" means crop which is not a long duration crop;

(e) "the crop season for each crop" means the period up to harvesting of the crops raised, as may be as determined by the State Level Bankers' Committee in each State.