The Reserve Bank of India (RBI) on Monday has directed banks to introduce an automated IT-based system for asset classification and provisioning.
The RBI with the objective 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 30 June 2021.
The RBI observed that the processes for non-performing assets (NPAs) identification, income recognition, provisioning, and generation of related returns in many banks are not yet fully automated.
It said that banks are still resorting to manual identification of NPAs and also over-riding the system generated asset classification by manual intervention in a routine manner.
All investment 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, upgrading and provisioning processes.
Calculation of provisioning requirement shall also be System based as per pre-set rules for various categories of assets, value of security as captured in the System and any other regulatory stipulations issued from time to time on provisioning requirements and the system shall handle both down-grade and upgrade of accounts through Straight through Process (STP) without manual intervention.
Exceptions may be granted from system driven classification in certain circumstances, which are expected to be minimum and temporary, subject to certain conditions.
Further banks may draw up their standard operating procedure (SOP) for System based NPA classification for usage by the operating staff.
Long back in August 2011, the central bank had issued a circular, advising the banks to have appropriate IT systems in place for identifying NPAs and generation of related data/returns, both for regulatory reporting and bank’s own MIS (Management Information System) requirements.
RBI noted that banks shall keep the business logic and other parameters/configurations of the System updated to ensure that the System based identification, classification, provisioning and income recognition are strictly in compliance with the regulatory guidelines on an ongoing basis.
There should be periodic system audit, at least once in a year, by Internal or External Auditors who are well versed with the system audit both on system parameters as also from the perspective of compliance to Income Recognition, Asset Classification and Provisioning guidelines.
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