Source: Mint
Context:
The Reserve Bank of India (RBI) plans to permit lenders to remotely lock mobile phones purchased on credit if borrowers default, aiming to reduce non-performing assets (NPAs) in small-ticket consumer loans.
Key Proposal:
- Banks and Non-Banking Financial Companies (NBFCs) may be allowed to remotely lock or disable mobile phones purchased on credit if the borrower defaults on repayments.
- This mechanism would act as a collateral-like security without physical repossession, helping lenders recover dues efficiently.
What you need to know from exam point of view?
This initiative would fall under RBI’s guidelines for secured lending and asset-backed financing, specifically:
- Master Directions on Fair Practices Code for Lenders – ensuring transparency, borrower consent, and grievance redressal.
- Master Directions on Non-Performing Assets (NPAs) Classification and Provisioning – providing norms for recognition, recovery, and enforcement of small-ticket loans.
- Digital Lending Guidelines 2023 – governing use of technology in lending, including device-based tracking or locking mechanisms, while protecting borrower data and privacy.
- Secured Credit Regulations under the RBI Act, 1934 – allowing secured lending where the collateral can be digitally controlled or monitored.
What are Non-Performing Assets (NPAs)?
A Non-Performing Asset (NPA) is a loan or advance where the borrower has stopped making interest or principal repayments for a specified period, indicating the asset is not generating income for the lender.
Criteria (as per RBI):
- A loan is classified as an NPA if interest or principal remains overdue for more than 90 days.
- Applies to banks, NBFCs, and other lending institutions.
Types of NPAs:
- Substandard Assets: Assets overdue for up to 12 months.
- Doubtful Assets: Assets overdue for more than 12 months, with high risk of loss.
- Loss Assets: Assets identified as unrecoverable, even if partially written off.
Special Mention Accounts (SMA)
Before a loan becomes an NPA, RBI classifies accounts showing early signs of stress as SMA:
| SMA Category | Overdue Period | Meaning |
|---|---|---|
| SMA-0 | 1–30 days | Principal or interest overdue, minor delay. |
| SMA-1 | 31–60 days | Early warning of repayment stress. |
| SMA-2 | 61–90 days | Significant stress; may soon become NPA. |
| SMA-3 | 91+ days | Loan has defaulted; classified as NPA. |
