RBI mandates the NPA recognition process to be automated by banks

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RBI has mandated the banks to fully automate the process of recognition of Non-Performing Assets. RBI stated that the banks should update the process of asset classification as a part of the day end process in an official notification released on Monday.

The banks should have at least two levels of authorization in case manual intervention is required to override the system classification.

RBI mandated the automation of the NPA classification and provisioning calculation process leaving the lenders a period till 30th June 2021 to complete the process. The new regime will cover all the borrower accounts. The regulator required the banks to put in place or update their systems to conform to the guidelines by 30th June 2021 latest to ensure the completeness and integration of the automated Asset Classification, Provisioning calculation, and Income Recognition process.

All borrower accounts, including the temporary overdraft, will be included in the new guidelines, irrespective of the size and sector. The new system will also cover the investments of the banks`.

Various categories of assets, the value of security and regulatory stipulations will have pre-set rules which shall be relied upon by the system for calculating the provisioning requirement. The system driven process will also be undertaken for income recognition or derecognition of impaired assets. The automated process will also allow the systems to handle the upgrades and downgrade of accounts. The Reserve Bank of India noted that the processes for Non-Performing Asset identification, provisioning, income recognition, and generation of related returns in many banks were not yet fully automated. The banks were still resorting to manual identification of Non-Performing Assets which resulted in putting place the guidelines by the regulator. The Reserve Bank of India identified that the process of manual identification of the Non-Performing assets was still continued by many banks and also occasionally overriding the system generated asset classification by manual intervention in a routine manner.

In case a bank uses a separate application outside the Core Banking System (CBS) for asset classification, access to the required data must be provided to the system and the investment accounts shall be updated back into the Core Banking System automatically.

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