What changed
RBI issued an updated version of the 2003 Guidelines, incorporating all amendments up to June 30, 2010, to provide a single reference document. The circular consolidates existing instructions on registration, prudential norms, asset reconstruction, and financial asset acquisition for SCs and RCs.
What it means for you
Banks and lenders dealing with SCs/RCs must ensure compliance with the consolidated 2003 Guidelines, including the 180-day NPA classification rule. The update clarifies definitions like 'date of acquisition' and 'fair value,' impacting how financial assets are transferred and managed. Lenders should review their contracts and reporting processes to align with these norms.
What you must do
- Verify that all SCs/RCs you work with are registered under SARFAESI Act and comply with the 2003 Guidelines.
- Update internal NPA classification systems to reflect the 180-day overdue period as per the circular.
- Review asset acquisition agreements to ensure 'date of acquisition' is correctly recorded as per the amended definition.
- Ensure trusts used for securitisation are aware of exemptions and applicable provisions under paragraphs 4-15.
Who it affects
Securitisation Companies (SCs), Reconstruction Companies (RCs), Banks and financial institutions transferring assets to SCs/RCs, Trusts involved in securitisation transactions
What is the NPA classification period under these guidelines?
An asset is classified as NPA if interest or principal (or instalment thereof) is overdue for 180 days or more from the date of acquisition or the due date as per contract, whichever is later, or under other specified conditions.
Do these guidelines apply to trusts set up by SCs/RCs?
Yes, but the provisions of paragraphs 4, 5, 6, 9, 10(i), 10(iii), 12, 13, 14, and 15 shall not apply to trusts mentioned in paragraph 8 of the guidelines.
What is the 'fair value' definition used here?
Fair value is defined as the mean of the earning value and the break up value.