The Reserve Bank of India, on Monday, asked banks to upgrade their systems by June 30, 2021, for identification of non-performing assets (NPA) and calculation of provisioning.

“In order to ensure the completeness and integrity of the automated asset classification (classification of advances/investments as NPA and NPI and their upgradation), provisioning calculation and income recognition processes, banks are advised to put in place or upgrade their systems to conform to the following guidelines latest by June 30, 2021,” the RBI said, noting that many banks are still not yet fully automated and are resorting to manual identification of NPAs.

IT-based system

All borrowal accounts, including temporary overdrafts, irrespective of size, sector or types of limits, shall be covered in the automated IT-based system (system) for asset classification, upgradation, and provisioning processes, the RBI said, adding that the banks’ investments shall also be covered under the system.

Asset classification rules shall be configured in the system, in compliance with the regulatory stipulations, it further said.

“Calculation of provisioning requirement shall also be system-based as per pre-set rules for various categories of assets, value of security as captured in the system and any other regulatory stipulations issued from time-to-time on provisioning requirements,” the RBI said, adding that it should also handle both downgrade and upgrade of accounts through Straight Through Process (STP) without manual intervention.

An ongoing exercise

System-based asset classification shall be an ongoing exercise for both downgradation and upgradation of accounts, and banks should ensure that the asset classification status is updated as part of day-end process.

“Banks should also be able to generate classification status report at any given point of time with actual date of classification of assets as NPAs and NPIs,” the RBI further said.

The RBI had come out with a circular in 2011, in which it had advised banks to have appropriate IT system in place for identification of NPAs and generation of related data or returns, both for regulatory reporting and bank’s own MIS requirements.

Exceptions may be granted from system-driven classification in certain circumstances, which are expected to be minimum and temporary, the RBI said, adding that banks should not resort to manual intervention or over-ride in the system-based asset classification process.

Manual intervention should have at least two level authorisation and banks should maintain a log of all such exceptions.