What changed
Earlier, any positive MTM derivative receivable overdue 90+ days triggered borrower-wise NPA classification for all funded facilities. Now, for FX derivatives other than forwards and plain vanilla swaps/options entered between April 2007 and June 2008, only the overdue receivable is classified as NPA; other funded facilities remain governed by standard IRAC norms.
What it means for you
Banks get relief from automatic cross-contamination of asset quality for clients with complex FX derivative losses from that period. This prevents a single overdue derivative MTM from dragging down entire loan portfolios, but the overdue amount itself must still be recognized as NPA. Foreign branches of Indian banks also benefit.
What you must do
- Identify all FX derivative contracts (non-forward, non-plain-vanilla) entered April 2007–June 2008 with positive MTM receivables overdue 90+ days.
- Park such overdue receivables in a separate client account and classify them as NPA per IRAC norms.
- Do not automatically classify other funded facilities of that client as NPA solely due to this overdue derivative MTM.
- Ensure all other IRAC norms continue to apply to the client's remaining assets.
Who it affects
All Scheduled Commercial Banks (excluding RRBs and LABs), All-India Term Lending and Refinancing Institutions, Foreign branches of Indian banks
Does this relaxation apply to all derivative contracts?
No, it applies only to foreign exchange derivative contracts other than forward contracts and plain vanilla swaps and options, entered during April 2007 to June 2008.
If the overdue derivative MTM is parked separately, can other funded facilities remain standard?
Yes, as long as those facilities are not otherwise NPA under standard IRAC norms. The overdue receivable itself must be classified as NPA.
Are foreign branches of Indian banks covered?
Yes, the circular explicitly extends these relaxations to foreign branches of Indian banks.