Concerned over handbook identification of dangerous loans by some banks, the RBI on Monday requested lenders to introduce an automated IT-based system for asset classification and provisioning.
In a round, the RBI stated in August 2011 banks had been suggested to put in place acceptable IT techniques for identification of non-performing belongings (NPAs) and era of associated information and returns, each for regulatory reporting and financial institution’s personal administration info system (MIS) necessities.
It is, nonetheless, noticed that the processes for NPA identification, revenue recognition, provisioning and era of associated returns in lots of banks should not but totally automated, the RBI stated.
“Banks are still found to be resorting to manual identification of NPA and also over-riding the system generated asset classification by manual intervention in a routine manner,” it added.
The RBI requested banks to put in place or improve their IT techniques so as to make sure the completeness and integrity of the automated asset classification, provisioning calculation and revenue recognition processes newest by June 30, 2021.
All borrowal accounts, together with short-term overdrafts, no matter dimension, sector or forms of limits, must be coated within the automated IT-based system for asset classification, upgradation, and provisioning processes, it stated.
“Banks’ investments shall also be covered under the system,” it stated, including that asset classification guidelines must be configured within the system, in compliance with the regulatory stipulations.
Further, calculation of provisioning requirement must also be system based mostly as per pre-set guidelines for numerous classes of belongings, worth of safety as captured within the system and every other regulatory stipulations issued from time to time on provisioning necessities.
“The System shall handle both down-grade and upgrade of accounts through Straight Through Process (STP) without manual intervention,” RBI stated.
Exceptions could also be granted from system pushed classification in sure circumstances, that are anticipated to be minimal and short-term, topic to sure circumstances.
The RBI additional stated the adherence to the directions will likely be examined as a part of supervisory evaluation of the banks.
In case of non-compliance, appropriate supervisory or enforcement motion can be initiated in opposition to the involved financial institution, it added.