Bad debt interest

Institutions covered, and how (sub-rules 1 and 2). Section 56 applies to a public financial institution, scheduled bank, State Financial Corporation and State Industrial Investment Corporation where its interest income relates to the categories in sub-rule (1), and to a "public company" (defined in sub-rule 3(c)) where its interest income relates to the categories in sub-rule (2).

Categories for the banks and institutions (sub-rule 1).

• Loans and advances, where interest or an instalment of principal is overdue for more than 180 days; an overdraft or cash credit account is out of order; a purchased or discounted bill is overdue for more than 180 days; an instalment is overdue for two crop seasons (short duration crops) or one crop season (long duration crops); a liquidity facility for a securitisation transaction under the Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021 is outstanding for more than 180 days; or derivative receivables with a positive mark-to-market value stay unpaid for 180 days from the due date.
• Accounts, where a working capital account has irregular drawings for a continuous 180 days (drawing power based on stock statements older than six months counts as irregular); credit limits are not reviewed or renewed within 180 days of the due date or ad hoc sanction; security has eroded so that its realisable value is under 50% of the value assessed at the last inspection; or its realisable value is under 10% of the outstanding.

Categories for a public company (sub-rule 2). A doubtful asset — a debt that has stayed a non-performing asset (of a kind listed in sub-clause (ii)) for more than two years — and a loss asset, identified as uncollectible but not written off. The non-performing assets listed are: an asset on which interest is overdue more than 180 days; a term loan (other than to an agriculturist) overdue more than 180 days; a demand or call loan overdue more than 180 days; a bill overdue more than 180 days; interest or short-term-loan income on 'other current assets' overdue more than 180 days; dues from sale of assets, services or reimbursed expenses overdue more than 180 days; lease rentals and hire purchase instalments overdue more than 180 days; an agricultural term loan unpaid for two crop seasons (short duration) or one (long duration); and, once any credit facility to a borrower turns non-performing, the balance outstanding under that borrower's other facilities.

Definitions (sub-rule 3). An overdraft or cash credit account is "out of order" if the balance stays above the sanctioned limit or drawing power for 180 days, or stays below it with no credits for 180 days or credits too small to cover the interest debited in the previous 180 days. A "long duration crop" has a crop season longer than one year; a "short duration crop" is any other; and the crop season is the period up to harvest, as determined by the State Level Bankers' Committee. A "public company" is a public company under section 2(71) of the Companies Act, 2013, whose main object is long-term finance for house construction or purchase in India for residential purposes, registered under section 29A of the National Housing Bank Act, 1987 or under the housing finance directions the rule cites.