What changed
Overdue positive mark-to-market receivables from derivatives are now classified as NPAs after 90 days, triggering borrower-wise NPA classification for all funded facilities. Restructured derivative contracts require cash settlement of mark-to-market value on restructuring date. Unrealised income booked on accrual basis must be reversed to a suspense account after 90 days overdue.
What it means for you
Banks must closely monitor derivative receivables to avoid cascading NPA classifications across borrower relationships. Cash settlement on restructuring adds liquidity pressure on clients. Reversal of accrued income impacts profit and loss statements, requiring tighter provisioning and income recognition discipline.
What you must do
- Track overdue derivative receivables and classify as NPA after 90 days, applying borrower-wise asset classification.
- Ensure cash settlement of mark-to-market value for any restructured derivative contracts.
- Reverse unrealised income from overdue derivative receivables to suspense account after 90 days.
- Update internal systems to flag derivative exposures and integrate with existing NPA monitoring frameworks.
Who it affects
Commercial banks (excluding Local Area Banks and RRBs), Foreign branches of Indian banks, Borrowers with derivative contracts and cash credit/overdraft facilities
What happens if a derivative receivable is unpaid for 90 days?
It becomes an NPA, and all other funded facilities to that borrower also become NPAs under borrower-wise classification.
How should restructured derivative contracts be treated?
The mark-to-market value on restructuring date must be cash settled. Any change in contract parameters counts as restructuring.
What should banks do with income already booked on overdue derivative receivables?
After 90 days overdue, reverse the income from profit and loss to a suspense account, similar to overdue advances.