What changed
RBI issued an updated circular consolidating the Mortgage Guarantee Companies Prudential Norms Directions, 2008, incorporating all amendments up to June 30, 2011. The notification replaces the earlier February 15, 2008 version and is placed on the RBI website for easy reference. No new substantive rules were introduced; it is a compilation exercise.
What it means for you
Mortgage Guarantee Companies must now refer to this consolidated version for all prudential requirements, ensuring compliance with definitions like NPA, doubtful asset, and net owned fund. The circular clarifies that assets acquired on trigger events are immediately classified as NPAs. Lenders dealing with MGCs should align their risk assessment and provisioning with these updated norms.
What you must do
- Review the consolidated prudential norms and update internal policies accordingly.
- Ensure NPA classification for mortgage guarantee assets follows the trigger event rule.
- Recalculate net owned fund as per the defined formula, deducting investments in and loans to subsidiaries/group companies exceeding 10% of the aggregate of paid-up equity capital and free reserves.
- Train compliance teams on the updated definitions of doubtful and loss assets.
Who it affects
Mortgage Guarantee Companies registered with RBI, Credit institutions availing mortgage guarantee services, RBI supervision teams monitoring MGC compliance
What is the trigger event for NPA classification in mortgage guarantee assets?
An asset acquired from a credit institution on the happening of a trigger event is straight away classified as a non-performing asset and then aged accordingly.
How is net owned fund calculated for a Mortgage Guarantee Company?
Net owned fund is paid-up equity capital plus free reserves, minus accumulated losses, deferred revenue expenditure, and intangible assets, further reduced by investments in subsidiaries/group companies and loans to them exceeding 10% of the aggregate.
Does this circular introduce new prudential requirements?
No, it consolidates existing directions from 2008 as amended up to June 30, 2011, without new substantive changes.