NPA Management
The RBI has issued Master Circular dated July 1, 2015,on Prudential Norms on Income Recognition, Asset Classification and provisioning pertaining to Advances. The Circular stresses the importance of effective mechanism and granular data on NPA management in the banks and provides as follows:
Asset quality of banks is one of the most important indicators of their financial health. However, it has been observed that existing MIS on the early warning systems of asset quality, needed improvement. Banks are, therefore, advised that they should review their existing IT and MIS framework and put in place a robust MIS mechanism for early detection of signs of distress at individual account level as well as at segment level (asset class, industry, geographic, size, etc.). Such early warning signals should be used for putting in place an effective preventive asset quality management framework, including a transparent restructuring mechanism for viable accounts under distress within the prevailing regulatory framework, for preserving the economic value of those entities in all segments.
The banks’ IT and MIS system should be robust and able to generate reliable and quality information with regard to their asset quality for effective decision making. There should be no inconsistencies between information furnished under regulatory / statutory reporting and the banks’ own MIS reporting. Banks are also advised to have system generated segment-wise information on non-performing assets and restructured assets which may include data on the opening balances, additions, reductions, (upgradations, actual recoveries, write-offs etc.) closing balances, provisions held, technical write-offs, etc.