The Reserve Bank of India (RBI ) has laid down norms on issues regarding the asset classification status of overdue payments, in respect of derivative transactions and re-structuring of derivative contracts. On asset classification, the RBI said that the overdue receivables representing positive mark-to-market value of a derivative contract will be treated as a non-performing asset if these remain unpaid for 90 days or more. In that case, all other funded facilities granted to the client shall also be classified as non-performing assets following the principle of borrower-wise classification as per the existing asset classification norms.
If the client concerned is also a borrower of the bank enjoying a cash credit or overdraft facility from the bank, the receivables mentioned at item (i) above may be debited to that account on due date and the impact of its non-payment would be reflected in the cash credit or overdraft facility account. The principle of borrower-wise asset classification would be applicable here also as per extant norms.
In cases where the contract provides for settlement of the current mark-to-market value of a derivative contract before its maturity, only the current credit exposure (not the potential future exposure) will be classified as a non-performing asset after an overdue period of 90 days.
As the overdue receivables mentioned above would represent an unrealised income already booked by the bank on accrual basis after 90 days of overdue period, the amount already taken to the ?profit and loss account? should be reversed and held in a ?suspense account? in the same manner as is done in the case of overdue advances.
In cases where a derivative contract is restructured, the mark-to-market value of the contract on the date of restructuring should be settled by cash. For this purpose, any change in any of the parameters of the original contract would be treated as restructuring. ?These instructions will also be applicable to foreign branches of Indian banks,? stated the RBI.
