Every day I am visited by bank borrowers complaining that their CIBIL Score has gown down even when none of their loan accounts is marked as Non-Performing Asset (NPA) by their Bank and all their Loan accounts are Standard shown as STD in the CIBIL Report. I tell them on their face that even Standard Assets can also worsen their CIBIL Scores! Sounds Strange? But it is true that Standard Assets can also worsen your CIBIL Score!
Usually, the Banks mark the loan accounts as NPA (Non-Performing Asset) after the borrowers enjoy the privilege of keeping their loan accounts as Standard Assets for a period of three months at stretch. To understand the underlying principle of downgrading CIBIL Scores even when the loan account is a Standard Asset we must know the exact definition of a Standard Assets and Fractured Assets liked Sub Standard, Doubtful and/or Loss Assets.
As per RBI Guidelines in force:
Standard Assets are accounts which are overdue for less than 90 days. Banks do not mark any loan account as NPA till the borrowers breach the overdue period of 90 days. The public, in General, is under a misconception that their Loan Account cannot downgrade their CIBIL Scores till it is a Standard Asset. But it is not so as Banks records even small defaults of even a single day and every day of default is counted in the number of days for reporting the loan account as Past Due in CIBIL Report. To understand the concept of Past Due, we need to understand the concept of DPD in CIBIL or Credit Reports.
What is DPD in CIBIL Reports?: DPD stands for Days Past Due which is number of Days that have passed from the agreed repayment due date of EMI.
DPD of ‘0 zero’ indicates that the Payment is made as agreed and the credit/loan account is up to date without any default. The account is termed as a Regular Standard Asset, the best possible asset classification as per RBI Guidelines.
DPD of ‘>0 >zero’ equal to or less than 90 days indicates that the loan account is “Days Past Due” by such number of days as reported by the respective lenders to the Credit Bureaus. Such accounts are termed as Irregular Standard Assets, adversely affecting the CIBIL Scores to the extent of Number of Days for which the account is Past Due. Scores go on reducing with every day of default or increase in the number of days for which the loan is Past Due.
DPD can be any number from “0” to “90” or even more than that if the lending Banker does not mark the loan account as NPA to keep its Balance Sheet in good health.
Sometimes after the Bank or Lending Institution either decides to mark the account as NPA or actually classifies the loan account as NPA, the borrowers rush to clear the overdue and get the loan account marked as Standard Asset again. But the prudent bankers keep such accounts under their close supervision by marking such accounts as SMA or SPECIAL MENTION ACCOUNTS. Broadly speaking accounts with SMA status are those Standard Asset Accounts in which the lending institution would like to monitor the account closely for one of some other discrepancies.
We will be discussing about SS (Sub Standard), DBT (Doubtful) and LSS (Loss) assets in our next post. Please keep visiting us for your CIBIL Problem.