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What is the interest not debited in borrowal account

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Sheetal asked 8 months ago

What is the interest not debited in the borrowal.account in case of (gross npa please elaborate 

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 20180702 145746 Vaibhav answered 2 months ago

Hello Sheetal,

"In respect of borrowal accounts which are treated as performing assets, accrued interest may be debited to the borrowal account and credited to interest account and taken to income account."

"If any advance, including bills purchased and discounted, becomes NPA as at the close of any year, interest accrued and credited to income account in the corresponding previous year, should be reversed or provided for if the same is not realised. This will apply to Government guaranteed accounts also."

Illustrative Accounting Entries to be passed in respect of Accrued Interest on both the Performing and Non-performing Advances

I. Accrued Interest on Performing Advances

 

(i) It has been clarified in paragraph 2(ii) of this circular that accrued interest in respect of performing advances may be charged to borrowal accounts and taken to income account. Illustratively, if the accrued interest is Rs.10,000/- in respect of performing advances of a borrower 'X' (cash credit, overdraft, loan account, etc.) the following entries can be passed in the Books of Account.

(Dr) Borrower's account (CC, OD, loan) Rs.10,000.00

(Cr) Interest account Rs.10,000.00

(ii) In case the accrued interest of Rs.10,000/- in respect of the borrowal account is not actually realised and the account has become NPA as at the close of subsequent year, interest accrued and credited to income account in the corresponding previous year, should be reversed or provided for if the same is not realised by passing the following entries:

(Dr) (P&L a/c) Rs. 10,000.00

(Cr) Overdue Interest Reserve Account Rs. 10,000.00

 

(iii) In case accrued interest is realised subsequently, the following entries may be passed:

(Dr) Cash/Bank account Rs. 10,000.00

(Cr) Borrower's Account (CC, OD, Loan) Rs 10, 000.00

(Dr) Overdue Interest Reserve Account Rs. 10, 000.00

(Cr) Interest account Rs. 10,000.00

II. Accrued Interest on Non-Performing Advances

(i) Accrued interest in respect of non-performing advances may be debited to 'Interest Receivable Account' and corresponding amount credited to 'Overdue Interest Reserve Account'. For example, if the interest accrued in respect of Cash Credit/OD/Loan etc. account of a borrower 'Y' is Rs.20,000/- the accounting entries may be passed as under:

(Dr) Interest Receivable Account Rs.20,000.00

(Cr) Overdue Interest Reserve Account Rs.20,000.00

 

(ii) Subsequently, if interest is actually realised, the following accounting entries may be passed:

(Dr) Cash/Bank Account Rs.20,000.00

(Cr) Interest account Rs.20,000.00

(Dr) Overdue Interest Reserve Account Rs.20,000.00

(Cr) Interest Receivable Account Rs.20,000.00

III. Accounting of Overdue Interest in Loan Ledgers & Balance Sheet

(i) With a view to facilitating the banks to work out the amount of interest receivable in respect of each non-performing borrowal account, banks can consider opening a separate column in the individual ledger accounts of such borrowers and interest receivable shown therein. This would enable the banks to determine at a particular point of time, the amount of interest actually to be recovered from the borrowers. Total of the amounts shown under the separate columns in the loan ledgers would be interest receivable in respect of non-performing advances and it would get reflected as such on the 'assets' side of balance sheet with a corresponding item on the liabilities side of the balance sheet as 'Overdue Interest Reserve'.

(ii) Similarly, a separate column should be provided in the loan ledger in respect of performing advances for showing accrued interest taken to income account on 31 March every year so that a watch can be kept on them. If the accrued interest is not realised and the account becomes NPA in the subsequent year, the amount has to be reversed or provided for

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