The Reserve Bank of India (RBI) will initiate deterrent action including imposition of monetary penalties against bank officials who willfully do not comply with prescribed norms for identifying divergence in assessment of non-performing assets (NPAs).
"Banks should ensure scrupulous compliance with the instructions for recognition of credit impairment and view aberrations by dealing officials seriously," a RBI working group -- set up to examine the causes for divergence in asset classification and narrow down the divergence -- has said.
Banks should establish appropriate internal systems to eliminate the tendency to delay or postpone the identification of NPAs, especially in respect of high value accounts, it added.
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The recommendations of the group come in the wake of the periodical inspections of RBI bringing out instances of deviation on income recognition, asset classification and provisioning even where the instructions are clear and unambiguous.
A minimum cut-off point may be fixed by the banks to decide what would constitute a high value account depending upon their respective business levels. The cut-off point should be valid for the entire accounting year with the responsibility and validation levels for ensuring proper asset classification to be fixed by the bank.
The banks should ensure that doubts in asset classification due to any reason are settled through specified internal channels within one month from the date on which the account would have been classified as NPA as per extant guidelines.
In case of large borrowers, stock statements relied upon by the banks for determining drawing power should not be older than three months and outstandings in the account based on drawing power calculated from stock statements older than three months, would be deemed as irregular, the RBI has clarified.
It added that a working capital borrowal account will become NPA if such irregular drawings are permitted in the account continuously for 180 days even though the unit may be working or the borrower's financial position is satisfactory.
Erosion in the value of security can be reckoned as significant when the realisable value of the security is less than 50 per cent of the value assessed by the bank or accepted by RBI at the time of last inspection, as the case may be. Such NPAs may be straight-away classified under doubtful category and provisioning should be made as applicable to doubtful assets.