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Income Recognition, Asset Classification and Provisioning - Adoption of 90 days Norm


In terms of May 2003 guidelines, banks classify an asset as non-performing if the interest and/or installment of principal remained overdue for a period of more than 90 days with effect from the year ended March 31, 2004. However, both gold loans and small loans upto Rs 1 lakh were exempted from the 90 day norm for loan impairment and continued to be governed by the 180 days norm for classification as NPA even after March 31, 2004.

With a view to strengthening the financial health of the UCBs and achieving regulatory convergence of the prudential norms applicable to various players in the financial sector, Reserve Bank of India has notified in August 2004, that the 90 days loan impairment norm will also be applicable to gold loans and small loans upto Rs 1 lakh with effect from the year ending March 31, 2005. In other words, with effect from the year ending March 31, 2005, UCBs will be required to classify an asset as non-performing if interest and /or installment of principal remain overdue for a period of more than 90 days, without any exception.

An Update- Taking into consideration the requests made by banks and Federation/ Association of UCBs, RBI has decided on 4th September 2004, that the gold loans and small loans up to Rs. 1 lakh will be governed by the 90-day norm with effect from the year ending March 31, 2007. Till then, they will be governed by the 180-day norm as hitherto.


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