Reserve Bank of India has asked banks to undertake complete automation of NPA classification and provisioning calculation process. It has directed the banks to consider all the borrower accounts under the new regime. The time which has been set by RBI for lenders to finish the process is June 30, 2021.
“In order to ensure the completeness and integrity of the automated Asset Classification (classification of advances, investments as NPA and their upgradation), Provisioning calculation and Income Recognition processes, banks are advised to put in place or upgrade their systems to conform to the guidelines latest by June 30, 2021,” the regulator said.
The new guidelines will encompass every borrower account, including temporary overdrafts, irrespective of size or sector.
The new system also brings banks’ investments under its purview.
Under the automation drive, the provisioning requirement will be calculated on a system-based automated method, depending on the pre-set rules for different categories of assets, value of security and regulatory provisions. In addition, the recognition of income or derecognition of impaired assets will also be driven by the system. The system at the same time will also handle upgrades and downgrade of accounts through the automated process.
“Banks should ensure that the asset classification status is updated as part of day end process,” the RBI said. “In any exceptional circumstance where manual intervention is required to override the System classification, it must have at least two level authorisation.”
The regulator noted that guidelines are being put in place after observing that the processes for NPA identification, income recognition, provisioning and generation of related returns in many banks are not yet fully automated. Banks are still found to be resorting to manual identification of NPA and also over-riding the system generated asset classification by manual intervention in a routine manner, the regulator stated.
The Supreme Court of India recently passed an interim order saying that the accounts not declared as non-performing asset (NPA) as on 31 August shall not be declared as NPAs till further notice. (Economic Times)