Keep NPAs for 15 months: RBI

The Reserve Bank of India's draft guidelines for purchase or sale of bad loans, issued on Tuesday, suggested that banks purchasing non-performing assets should keep them on their books for at least 15 months.

The draft said any restructuring, rescheduling or re-phasing of the repayment schedule of the non-performing financial assets would render the account as a non-performing asset.

NPAs purchased cannot be sold before 15 months and will have to be assigned 100 per cent risk weight for the purpose of capital adequacy.

In case the non-performing asset purchased is an investment, then it will attract capital charge for market risks also. For non-banking financial companies, the relevant instructions on capital adequacy will be applicable.

NPAs can be classified as "standard" in the books of the purchasing bank for a period of 90 days from the date of purchase.

The asset classification status of an existing exposure to the same obligor in the books of the purchasing bank would continue to be governed by the record of recovery of that exposure and hence might be different, the guidelines said.

After the 90-day period, the asset classification status of the account shall be determined by the record of recovery in the books of the purchasing bank with reference to cash flows estimated while purchasing the asset.

The asset classification status of the financial asset in the books of the purchasing bank at the time of purchase shall be the same as in the books of the selling bank, if the transaction does not satisfy any of the prudential requirements.

The draft said if the sale was at a price below the net book value (that is, book value less provisions held), the shortfall should be debited to the profit and loss account of that year.

If the sale was for a value higher than the NBV, the excess provision shouldª not be reversed but would be utilised to meet the shortfall/ loss on account of sale of other non performing financial assets.

The purchasing bank will have to reckon exposure on the obligor of the specific financial asset.

Hence banks should ensure compliance with the prudential credit exposure ceilings, both single and group, after reckoning the exposures to the obligors arising on account of the purchase. For NBFCs the relevant instructions on exposure norms would be applicable.