RBI to automate income recognition Asset Classification & Provisioning processes in banks.

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The Reserve Bank of India vide its notification dated 14th September 2020 has directed banks to introduce an automated IT-based system for asset classification and provisioning.

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.

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.

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