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All investment and borrowal accounts should be covered in the automated system, RBI said on Monday. Bloomberg
All investment and borrowal accounts should be covered in the automated system, RBI said on Monday. Bloomberg

Banks must automate NPA recognition by 30 June: RBI

Central bank raps lenders for resorting to manual identification of stressed accounts

The Reserve Bank of India (RBI) has asked banks to complete the automation of bad loan recognition and provisioning processes by 30 June 2021.

The processes for non-performing asset (NPA) identification, income recognition, provisioning and generation of related returns in many banks are not yet fully automated, the central bank observed in a notification issued on Monday.

Banks are still found to be resorting to manual identification of NPAs and also overriding the system-generated asset classification by manual intervention in a routine manner, it said.

“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," said the notification.

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, RBI said.

Income recognition and derecognition in case of impaired assets shall be system-driven and the amount required to be reversed from the income account should be obtained from the system without any manual intervention, it said.

Banks should ensure that the asset classification status is updated as part of the day-end process, according to the notification. Banks should also be able to generate classification status reports at any given point of time with actual date of classification of assets as NPAs/NPIs, RBI said.

The central bank noted that banks should not resort to manual intervention-based asset classification processes.

However, in any exceptional circumstance where manual intervention is required, it must have at least a two-level authorization.

Such delegation of powers for authorizing the exceptions should be according to the board-approved policy of the bank and preferably should be done from the centralized location and suitably documented. Such intervention should be subjected to audit by concurrent and statutory auditors, RBI said.

In case a separate application outside the core banking system (CBS) is used for NPA classification, the system must have access to the required data and investment accounts shall be updated back into the CBS automatically, the central bank said.

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