What is interest accrual?
Interest earned as time passes, whether or not it has been collected.
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.
How is interest accrual calculated?
Daily, on the balance outstanding that day, at the rate applying that day. Running it nightly rather than monthly matters because almost nothing in a loan book happens neatly on the first of the month: a disbursement mid-month, a part payment on the nineteenth, a rate that changes with the loan's age.
Interest accrual: a worked example
₹4,00,000 outstanding at 14% accrues roughly ₹153 a day. Over a month that is about ₹4,670 recognised as income — even in a month where the borrower paid nothing at all. That is correct accounting right up to the point the account stops performing, and then it is not.
Why does interest accrual matter?
It is the difference between profit that exists and profit that has merely been booked. An NBFC whose accrued interest is growing faster than its collections is reporting income it has not received, and the correction, when it comes, arrives all at once.
What the regulations say about interest accrual
Once an account is non-performing, income recognition switches to a receipt basis and interest already accrued but not collected must be reversed out. Accruing on a bad account is the single most common way a book overstates its own earnings.
What a lending system has to do about interest accrual
Accrual runs as a nightly scheduled job, never on user request. It is sequenced deliberately AFTER the day's classification sweep, not before: a loan that turns non-performing tonight must not accrue income tonight. Running the two in the other order books a day of income the same night the account stops being entitled to it.
Related terms
- NPA (non-performing asset) — An account where payment is overdue beyond the prescribed period.
- IRAC norms — Income recognition, asset classification and provisioning.
- EMI (equated monthly instalment) — A fixed monthly payment covering both interest and principal.
- Overdue — An amount the lender demanded and the borrower did not pay.
From the people who wrote this
Run your lending on Lenviq
The section above describes what a lending system has to do about this term. Lenviq does it — on every account, computed at day-end, with the direction it comes from recorded against it.
Lenviq is loan origination, servicing and accounting for NBFCs, built by FastLegal Technologies.