RBI Master Circular on Mortgage Guarantee Prudential Norms 2008

RBI/2008-09/10 DNBS (PD-MGC) C.C. No. 3/03.11.01/2008-09 July 1, 2008 To The Chairman/CEOs of all Mortgage Guarantee Companies Dear Sir, Master Circular – “Mortgage Guarantee Companies Prudential Norms (Reserve Bank) Directions, 2008” and " Mortgage Guarantee Companies Investment (Reserve Bank) Directions, 2008" The directions on prudential norms and investment norms as applicable to Mortgage Guarantee Company were issued by Reserve Bank of India on February 15, 2008, vide Notification Nos. DNBS (MGC) 4 / CGM (PK) -2008 and DNBS (MGC) 5 / CGM (PK) -2008 . The said Notification as on June 30, 2008 is reproduced below. Yours faithfully, (P. Krishnamurthy) Chief General Manager In-Charge RESERVE BANK OF INDIA DEPARTMENT OF NON-BANKING SUPERVISION CENTRAL OFFICE CENTRE I, WORLD TRADE CENTRE CUFFE PARADE, COLABA MUMBAI 400 005 Notification DNBS(PD)MGC No.4 / CGM (PK) - 2008 dated February 15, 2008 The Reserve Bank of India, having considered it necessary in the public interest, and being satisfied that, for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to issue the directions relating to the prudential norms as set out below, in exercise of the powers conferred by Section 45JA of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, gives to every Mortgage Guarantee Company the directions hereinafter specified. Short title, commencement and applicability of the directions 1. (i) These directions shall be known as the "Mortgage Guarantee Companies Prudential Norms (Reserve Bank) Directions, 2008". (ii) These directions shall come into force with immediate effect and shall apply to every Mortgage Guarantee Company which has been granted Certificate of Registration under the scheme of Registration of Mortgage Guarantee Companies by the Reserve Bank of India. Definitions 2. (1) For the purpose of these directions, unless the context otherwise requires: (i) “doubtful asset” means an asset which remains a sub-standard asset for a period exceeding 12 months; (ii) “hybrid debt capital instrument” means capital instrument which possesses certain characteristics of equity as well as of debt; (iii) “loss asset” means: (a) an asset which has been identified as loss asset by the mortgage guarantee company or its internal or external auditor or by the Reserve Bank of India, to the extent it is not written off by the mortgage guarantee company; and (b) an asset which is adversely affected by a potential threat of non-recoverability for reasons like erosion in the value of security or non availability of security or due to any fraudulent act or omission on the part of the borrower, etc.; (iv) “Mortgage Guarantee Company” means as defined in paragraph 2(1)(l) of the Mortgage Guarantee Company (Reserve Bank) Guidelines, 2008; (v) (I) For the purpose of these directions ‘net owned fund’ means: (a) the aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance sheet of the company after deducting therefrom- (i) accumulated balance of loss; (ii) deferred revenue expenditure; and (iii) other intangible assets; and (b) further reduced by the amounts representing- (1) investments of such company in shares of- (i) its subsidiaries; (ii) companies in the same group; (iii) all other non-banking financial companies; and (2) the book value of debentures, bonds, outstanding loans and advances (including hire-purchase and lease finance) made to, and deposits with- (i) subsidiaries of such company; and (ii) companies in the same group, to the extent such amount exceeds ten per cent, of (a) above. (II) "subsidiaries" and "companies in the same group" shall have the same meanings assigned to them in the Companies Act, 1956 (1 of 1956).] (vi) ‘non-performing asset’ (NPA) in respect of mortgage guarantee asset means, an asset acquired from the credit institution on the happening of trigger event which is straight away classified as non-performing asset and shall thereafter be classified according to the age of NPA; (vii) “owned fund” means paid up equity capital, free reserves including contingency reserves maintained as per paragraph 18 of the Guidelines on Registration and Operations of Mortgage Guarantee Company, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of asset, as reduced by accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any; (viii) “standard asset” means the asset in respect of which, no default in repayment of principal or payment of interest is perceived and which does not disclose any problem nor carry more than normal risk attached to the business; (ix) “sub-standard asset in respect of mortgage guarantee asset” means an asset which has been classified as non-performing asset for a period not exceeding 12 months; (x) "subordinated debt" means an instrument, which is fully paid up, is unsecured and is subordinated to the claims of other creditors and is free from restrictive clauses and is not redeemable at the instance of the holder or without the consent of the supervisory authority of the mortgage guarantee company. The book value of such instrument shall be subjected to discounting as provided hereunder: Remaining Maturity of the instruments

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2008-09/10 · issued 01 Jul 2008. The plain-English explanation above is BankPulse’s own independent summary.

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