Confused About COD Extensions in Real Estate? Will Missing Deadlines Make Your Account NPA?

If a commercial real estate project has not achieved COD (commercial operation date) and, as per the RBI master circular dated 1st July 15, has taken an extension of COD for the next 9 months (even though RBI allows a one-year extension), please clarify:

1. On non-achievement of the revised COD, will the account be classified as NPA? If yes, please share the circular or guidelines regarding this, as it is not explicitly mentioned that the account will be classified as NPA on non-achievement of COD.

2. When will the account be classified as NPA - after 9 months (as sanctioned by the bank) or after 1 year as per RBI guidelines?

Location: Ajmer, India
Tags: real estate, Country-India, City-India-Ajmer

Classification of Account as NPA in Case of Non-Achievement of COD

In the scenario where a commercial real estate project fails to achieve the Commercial Operation Date (COD) and opts for an extension as per the RBI master circular dated 1st July 2015, the classification of the account as a Non-Performing Asset (NPA) is a critical consideration. Here's a practical breakdown of the process:

- Regulatory Framework: The RBI master circular is the guiding policy in this context. While the circular does not explicitly state that non-achievement of COD leads to automatic NPA classification, the specific circumstances and actions taken by the bank come into play.

- NPA Classification: The determination of NPA status typically hinges on the repayment status of the loan. If the project fails to meet the revised COD and the borrower defaults on repayments, the bank may initiate the NPA classification process based on its internal policies and the RBI guidelines.

- Bank Discretion: Banks have the discretion to classify accounts as NPA based on the borrower's repayment behavior, project viability, and adherence to the COD timeline extensions. Therefore, the bank's assessment of the situation and the borrower's financial performance post-extension are crucial factors.

- Timeline for NPA Classification: While the RBI circular allows for extensions up to one year for COD achievement, the actual classification as NPA may be triggered earlier if the project faces significant delays, financial distress, or non-compliance with repayment obligations.

- Recommendation: It is advisable for the borrower to maintain transparent communication with the bank, provide regular project updates, and seek mutually agreeable solutions to mitigate the risk of NPA classification.

In summary, the NPA classification in the context of non-achievement of COD is contingent upon various factors, including project performance, repayment status, and bank discretion, as guided by the RBI circular and internal policies.

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Reference
- http://RBI Master Circular on Pruden...d Provisioning