What changed
RBI issued a consolidated version of the Mortgage Guarantee Companies Investment (Reserve Bank) Directions, 2008, incorporating amendments up to June 30, 2010. The update brings all existing instructions on investment norms into a single document for easier reference. No new substantive changes were introduced; it is a compilation of previously issued directions.
What it means for you
Mortgage guarantee companies must now refer to this updated notification for all investment-related prudential norms. The directions define key terms like fair value (mean of earning value and break-up value) and classify NPAs as assets overdue for 90 days or more. This ensures consistent application of investment policies and income recognition across the sector.
What you must do
- Review the updated investment directions and align your company's investment policy with the definitions and norms provided.
- Ensure NPA classification on investments follows the 90-day overdue criterion as specified.
- Update internal systems to compute fair value using the prescribed earning value and break-up value formulas.
- Maintain compliance with the investment policy requirements as per the directions.
Who it affects
All mortgage guarantee companies registered with RBI, Compliance and risk management teams of mortgage guarantee companies, Auditors reviewing investment portfolios of mortgage guarantee companies
What is the definition of non-performing asset (NPA) for mortgage guarantee companies under these directions?
An asset is classified as NPA if interest, principal, or amortization obligations have remained overdue for 90 days or more.
How is fair value calculated for investments by mortgage guarantee companies?
Fair value is the mean of the earning value and the break-up value of the investee company. Earning value is based on average profits after tax over three years, capitalized at rates depending on the company type (e.g., 8% for manufacturing, 10% for trading, 12% for others).