Automated NPA Recognition Mandatory for Banks, Provisioning by June 2021 - RBI

The Reserve Bank of India (RBI) has mandated banks to fully automate non-performing assets (NPA) classification and provisioning calculation process. All borrower accounts will be covered under the new regime. RBI has asked the lenders to comply with the guidelines by June 30, 2021.

“In order to ensure the completeness and integrity of the automated Asset Classification (classification of advances, investments as NPA and their up-gradation), 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.

Income recognition or derecognition of impaired assets will also be system driven. The system 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. In any exceptional circumstance where manual intervention is required to override the System classification, it must have at least two level authorization,” stated RBI.

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 new guidelines will include all borrower accounts, including temporary overdrafts, irrespective of size or sector. Banks’ investments will also be covered under the new system. Calculation of provisioning requirement will also be system based and will rely on pre-set rules for various categories of assets, value of security and regulatory stipulations.

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