RBI asks banks to complete automation of NPA recognition by 30 June 2021

• In a notification issued on Monday, RBI observed that the processes for NPA identification, income recognition, provisioning and generation of related returns in many banks are not yet fully automated.

Mumbai: The Reserve Bank of India has asked banks to complete the automation of bad-loan recognition and provisioning processes by 30 June. In a notification issued on Monday, RBI 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.

“In order to ensure the completeness and integrity of the automated Asset Classification (classification of advances/investments as NPA/NPI and their upgradation), Provisioning calculation and Income Recognition processes, banks are advised to put in place / upgrade their systems to conform to the following guidelines latest by June 30, 2021," said the notification.

RBI said that all investments and 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.

The central bank also said that income recognition and de-recognition in case of impaired assets shall be system-driven and amount required to be reversed from the income account should be obtained from the system without any manual intervention.

According to tRBI notification, 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, it said.

RBI noted that banks should not resort to manual-intervention-based asset classification process. However, in any exceptional circumstance where manual intervention is required, it must have at least two level authorization. Such delegation of powers for authorizing the exceptions should be as per the board-approved policy of the bank and preferably should be done from the centralized location and suitably documented. RBI also added that such intervention should have be subjected to audit by concurrent and statutory auditors.

RBI also noted that in case a separate application outside the core banking system is used for NPA classification, the system must have access to the required data and investment accounts shall be updated back into the CBS automatically.