Regulatory updates

Regulatory updates

Updates from RBI

Back

On 1 October 2021, the Reserve Bank of India (RBI) had issued a master circular on the prudential norms on Income Recognition, Asset Classification and Provisioning (IRACP) to advances.

On 12 November 2021, with a view to ensure uniformity in the implementation of IRACP across all lending institutions, RBI had issued a circular with certain clarifications (12 November circular).

On 15 February 2022, RBI issued further clarifications based on queries received on its circular dated 12 November 2021, which are as follows:

Out of Order:

The 12 November 2021 circular clarified that an account would be treated as out of order if:

  • The outstanding balance in the Cash Credit (CC)/Overdraft (OD) account remains continuously in excess of the sanctioned limit/drawing power for 90 days, or
  • The outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but
  • There are no credits continuously for 90 days, or the outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but credits are not enough to cover the interest debited during the previous 90 days period.

Clarification

It has been clarified that the definition of ‘out of order’ as per the circular issued on 12 November 2021 would be applicable to all loan products being offered as an overdraft facility, including those not meant for business purposes and/or which entail interest repayments as the only credits.

Further, the ‘previous 90 days period’ for determination of ‘out of order’ status of a CC/OD account would be inclusive of the day for which the day-end process is being run.

Upgradation of accounts classified as NPA

The 12 November 2021 circular stated that loan accounts classified as NPAs may be upgraded as ‘standard’ asset only if entire arrears of interest and principal are paid by the borrower.

Clarification

NBFCs would have time till 30 September 2022 to put in place the necessary systems to implement this provision. Additionally, SEBI has clarified that in case of borrowers having more than one credit facility from a lending institution, loan accounts should be upgraded from NPA to standard asset category only upon repayment of entire arrears of interest and principal pertaining to all the credit facilities.

No changes in certain requirements

RBI clarified that the November 2021 circular does not make any changes to the requirements related to reporting of information to the Central Repository of Information on Large Credits (CRILC) and interfere with the extant guidelines on implementation of Ind AS by NBFCs.

To access the text of RBI circular dated 15 February 2022, please click here

To access the text of RBI circular dated 12 November 2021, please click here

Action points for auditors

  • The circular provides extension of time till 30 September 2022 to NBFCs to ensure compliance with NPA requirements, and auditors should determine appropriate audit procedures to evaluate compliance with these changes.
  • NBFCs would classify loan accounts to standard category only when the interest and principal amounts of all credit facilities have been repaid. Thus, the classification from NPA to standard category will now be done on a ‘customer’ basis, and not on the basis on an individual loan account.

Our Insights

Tools and Enablers
Resources
Events and Webinars
Sectoral Insights

Reach out to us

;