The Hindu : Business : RBI draft norms for trading in NPAs

Online edition of India's National Newspaper
Wednesday, Apr 13, 2005

Business

Business

RBI draft norms for trading in NPAs

MUMBAI, APRIL 12. With a view to developing a healthy secondary market for non-performing assets, the Reserve Bank of India today issued draft guidelines for buying and selling NPAs of banks, financial institutions and NBFCs except asset reconstruction and securitisation outfits.

A financial asset, including assets under multiple or consortium banking arrangements, would be eligible for sale to other banks only if it has remained as NPA for at least two years in the books of the selling bank, the RBI said in its draft guidelines here. Banks should sell non-performing financial assets only on a cash basis. The selling bank should immediately take the assets off the books and there should not be any known liability devolving on it, it said.

The sale or purchase transaction should be done only on `without recourse' basis. The entire credit risk associated with the non-performing financial assets should be transferred to the purchasing bank.

The purchasing bank should hold a non-performing asset on its books for at least 15 months before it is sold, the RBI said.

The NPA financial asset may be classified as standard in the books of the purchasing bank for 90 days from the date of purchase. Thereafter, the asset classification status would be determined by the recovery record with reference to cash flows estimated while purchasing the asset.

Any restructuring, rescheduling and rephasing of the repayment schedule of asset would render the account as a non-performing asset, it added. — PTI

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