Glossary
The vocabulary, defined
Terms as they are used in Indian NBFC lending. Where a definition varies in practice, the entry says so rather than picking one and presenting it as the definition.
- DPD (days past due)
- The count of days since the oldest unpaid instalment fell due. DPD is the single number almost every other asset-quality answer is derived from: the SMA bucket, the move to non-performing, the figure reported to the credit bureaus, and what a diligence pack asks about first.
- DCB (demand, collection, balance)
- For a period: the demand raised, the collection received against it, and the closing balance outstanding. DCB is the oldest lending report there is and still the most revealing, because it puts the three numbers side by side instead of letting a growing book hide behind a single outstanding figure.
- IRAC norms
- The Reserve Bank's framework covering three linked questions: when a lender may recognise income on an account, how the account is classified as it deteriorates, and how much must be held against it. The three are one instrument because they move together — an account that stops performing stops earning recognised income on the same day it becomes non-performing.
- SMA-0, SMA-1, SMA-2
- Buckets that flag stress before an account becomes non-performing, based on how long a payment has been overdue. They are not internal warnings a lender may define for itself — they are a reported position, derived from the same day-end DPD that drives classification.
- NPA (non-performing asset)
- For most term loans, an account where interest or principal has remained overdue for more than ninety days. Classification is a consequence of the day-end position rather than a status somebody sets, and the same ninety-day basis applies across asset classes — the gold Directions, for instance, contain no asset-classification rule of their own.
- Provisioning
- A charge to the profit and loss account against loans that may not be recovered in full, at rates that step up as an account moves through the classification stages. It is not a cash movement — it is an acknowledgement, made in the accounts, that some of what is on the balance sheet will not arrive.
- LTV (loan to value)
- The outstanding against the value of the security: for a gold loan, against the value of the pledged ornaments at the applicable rate; for a property loan, against the assessed value. LTV is a ceiling at sanction and a monitored figure afterwards, because the value of the security moves and the outstanding does too.
- APR (annual percentage rate)
- The true yearly cost of borrowing, counting the interest AND every charge the lender recovers from the borrower. The headline interest rate prices only the money; the APR prices the whole arrangement, which is why the two are rarely the same number and why the Key Facts Statement asks for the second one.
- Penal charges
- The amount a lender levies when a borrower misses a payment or breaches a term. Since April 2024 these are charges and not interest, and the distinction is not cosmetic — it decides whether the amount can compound, whether it can be added to the loan, and when it may be recognised as income.
- KFS (Key Facts Statement)
- A disclosure the Reserve Bank requires lenders to give a borrower before sanction, in a prescribed format, stating the all-in cost of the loan as an annual percentage rate. It exists because a headline interest rate is not a price — the price is the rate plus everything else recovered from the borrower.
- EMI (equated monthly instalment)
- A single repayment amount that stays the same every month while its composition changes: early instalments are mostly interest, later ones mostly principal. The amount is level; what it is buying is not.
- Interest accrual
- Interest is earned by the passage of time, not by the arrival of a payment. Accrual is the daily recognition of what has been earned so far — income the lender has a right to, sitting alongside the cash that has actually come in. Healthy books show the two tracking each other; the gap between them is one of the earliest signs that they are not.
- FOIR (fixed obligation to income ratio)
- The share of a borrower's monthly income already committed to fixed obligations, including the instalment being applied for. It is the primary underwriting ratio in unsecured lending, where there is no security to fall back on and the file is the whole of the credit view.
- CIC (credit information company)
- CIBIL TransUnion, CRIF High Mark, Experian and Equifax. Lenders both pull credit reports from them and submit the performance of their own borrowers to them, on a prescribed format and cadence.
- CKYC
- A central repository of KYC records maintained by CERSAI, so a customer verified once by one regulated entity need not be re-verified from scratch by the next. A lender both searches it and uploads records to it.
- Static pool analysis
- Take every loan disbursed in a given month or quarter, then track that fixed set — its delinquency and its loss — as it ages. Because the set never changes, growth cannot flatter it.
- Vintage analysis
- The same idea as a static pool, arranged to compare cohorts at the same age: how each month's disbursement looked at six months on book, at twelve, at eighteen. Arranging by age rather than by calendar date is what makes the cohorts comparable at all.
- Collection efficiency
- Usually collections in a month over the demand raised for that month. Definitions vary — whether arrears collected are counted, whether prepayments are, whether foreclosures are — so the figure is only comparable when the definition travels with it.
- Overdue
- An amount is overdue when it was due on a date the lender fixed and was not paid by that date. The word carries more weight than it looks: it is the trigger for the days-past-due count, the special mention buckets, the classification of the asset, and what gets reported to the credit bureaus.
- Prepayment
- Paying more than the instalment due, so the outstanding balance falls faster than the schedule intended. Distinct from foreclosure, which pays the whole balance and closes the account — the two are treated differently both in the schedule and in the rules about what may be charged for them.
- Foreclosure
- Closing a loan by paying the entire outstanding before maturity. Distinct from part payment, which reduces the outstanding without closing the account — a distinction worth keeping, because the two are treated differently both in the schedule and in the rules about what may be charged.
- Moratorium
- A stated period at the start of a loan during which instalments do not fall due. Interest usually continues to accrue through it, so a moratorium changes the schedule rather than the cost.
From the people who wrote this
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