Prudential Norms of Asset Reconstruction

Abstract

A significant portion of the funds of banks and financial institutions is blocked in unproductive assets, the values of which keep deteriorating with the passage of time. Banks also incur substantial amount of expenditure by way of legal charges which add to their overheads. In line with the international practices and as per the recommendations made by the Committee on the Financial System (Chairman Shri M. Narasimhan), the Reserve Bank of India has introduced, in a phased manner, prudential norms for income recognition, asset classification and provisioning for the advances portfolio of the banks so as to move towards greater consistency and transparency in the published accounts. An asset is classified as non-performing asset (NPA) if the borrower does not pay dues in the form of principal and interest for a period of 90 days. If any advances or credit facility granted by bank to a borrower becomes non- performing, then the bank will have to treat all the advances/credit facilities granted to that borrower as non-performing without having any regard to the fact that there may still exist certain advances / credit facilities having performing status.