RBI mandates automated recognition of NPAs, provisioning by June 2021

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September 15, 2020 2:30 AM

The processes of provisioning calculation and income recognition will also have to be automated and banks will be required to upgrade their systems accordingly.

"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," it added.

The Reserve Bank of India (RBI) on Monday mandated the automation of bad-loan recognition by banks by June 30, 2021. The processes of provisioning calculation and income recognition will also have to be automated and banks will be required to upgrade their systems accordingly.

In its circular, the central bank said banks had earlier been advised to have appropriate information technology (IT) systems in place for identification of non-performing assets (NPA) and generation of related data/returns, both for regulatory reporting and banks’ own management information system (MIS) requirements.

“It is, however, observed 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 RBI said.

All borrowal accounts, including temporary overdrafts, irrespective of size, sector or types of limits shall be covered in the automated IT- based system for asset classification, upgradation and provisioning processes. Banks’ investments shall also be covered under the system. Asset classification rules shall be configured in the system, in compliance with regulatory stipulations.

The calculation of provisioning requirements shall also be system-based as per pre-set rules for various categories of assets, value of security as captured in the system and any other regulatory stipulations issued from time to time on provisioning requirements. In addition, income recognition and derecognition in case of impaired assets shall be system-driven and the amount required to be reversed from the income account should be obtained from the system without any manual intervention. The system shall handle both downgrade and upgrade of accounts through a straight through process (STP) without manual intervention.

The system-based asset classification shall be an ongoing exercise for both downgradation and upgradation of accounts. “Banks should ensure that the asset classification status is updated as part of day-end process. Banks should also be able to generate classification status report at any given point of time with actual date of classification of assets as NPAs/NPIs,” the RBI said.

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