RBI postpones implementation of 90-day income recognition normz

Our Banking Bureau

Mumbai, Nov 19: The Reserve Bank of India (RBI) has decided to implement at a later stage the Narasimham committee-II recommendation to bring down the time-frame for income recognition from the present 180 days to 90 days.

The committee had proposed its implementation in a phased manner by March 2002.

Considering the existing legal framework, production and payment cycles, business practices and the predominant share of agriculture in the country’s economy, and keeping in view the need for fulfilling some preconditions before implementing such a recommendation, action has not been initiated on the recommendation, RBI said in its Action Taken Report (ATR) on the committee’s recommendations.

“Considering the need to bring our norms in line with the best international practices, the recommendation made by the committee would be our long term objective,” RBI said while accepting the recommendation in principle. “As the level of gross non-performing assets (NPAs) of banks come down because of better management practices, the recommendation to introduce the norms of 90 days will be examined,” RBI added.

Now, income stops accruing to a bank only when interest or instalment of principal is not paid within 180 days of their due date.
The committee was of the view that India should move towards the international practice of 90 days in due course.

“Keeping in view the current industrial scenario, implementation of the recommendation would have serious implications,” RBI noted.
The precursors to implementation of the suggestion are calculation of interest at monthly rates against the present practice of quarterly rates; 100 per cent bank computeraisation, and toning up the legal machinery for speedy disposal of the collateral taken as security. RBI cited that the production and repayment cycles in the industry in the country generally involve a time-frame of 4-6 months.

A large number of SSIs also have difficulties in timely realisation of their bills drawn on the suppliers.

The implementation would also have serious implications on the asset portfolio of banks and even good quality borrowers making it difficult to comply with the recommendation.

Already there are representations from banks and financial institutions seeking relaxations in the existing norms and increasing the time-frame to 3 to 4 quarters, RBI said.