What changed
RBI issued a master circular consolidating two earlier directions from February 15, 2008—Prudential Norms and Investment Norms—into a single reference document as of June 30, 2008. The circular formalizes definitions for asset classification (sub-standard, doubtful, loss), NPA treatment for mortgage guarantee assets, and net owned fund computation. No new substantive requirements were introduced; it is a compilation of existing rules.
What it means for you
MGCs now have a single, clear reference for prudential and investment compliance, reducing ambiguity. The NPA classification rule—immediate NPA status upon trigger event—tightens asset quality recognition. Net owned fund calculation exclusions (e.g., investments in subsidiaries beyond 10%) may impact capital adequacy for some firms. Banks dealing with MGCs should reassess counterparty risk based on these norms.
What you must do
- Review your MGC's compliance with the master circular's asset classification and NPA definitions.
- Ensure net owned fund calculations follow the prescribed deductions for subsidiaries and group companies.
- Update internal policies to align with the immediate NPA classification on trigger events for mortgage guarantee assets.
- Verify that all MGCs you work with have valid RBI registration and adhere to these directions.
Who it affects
All Mortgage Guarantee Companies registered with RBI, Banks and credit institutions using mortgage guarantee services, RBI supervision teams monitoring MGC compliance
What is the definition of a non-performing asset for a mortgage guarantee company?
An asset acquired from a credit institution upon a trigger event is immediately classified as NPA and then aged for further classification.
How is net owned fund calculated for MGCs?
It is paid-up equity capital plus free reserves minus accumulated losses, deferred revenue expenditure, intangible assets, and further reduced by investments in subsidiaries/group companies and loans to them exceeding 10% of the aggregate.
When did these directions take effect?
The original directions were issued on February 15, 2008, and the master circular consolidates them as of June 30, 2008, with immediate effect from July 1, 2008.