What changed
This is a master circular that consolidates and updates the original guidelines issued on April 23, 2003, along with the Guidance Notes, as of June 30, 2008. No new policy changes were introduced; it serves as a single reference document for SCs and RCs.
What it means for you
Banks and lenders dealing with SCs/RCs now have a consolidated regulatory framework to refer to, ensuring consistency in asset reconstruction and securitisation practices. The circular reinforces prudential norms like NPA classification (180-day overdue) and fair value calculation, which impact how banks transfer and recover stressed assets.
What you must do
- Review your existing agreements with SCs/RCs to ensure compliance with the updated master circular.
- Align internal NPA classification and provisioning norms with the 180-day overdue definition for acquired assets.
- Update your due diligence processes for asset transfers to SCs/RCs to match the fair value and disclosure requirements.
- Train your credit and recovery teams on the consolidated guidelines for smoother asset reconstruction operations.
Who it affects
Securitisation Companies (SCs), Reconstruction Companies (RCs), Banks and financial institutions transferring stressed assets, Investors in security receipts issued by SCs/RCs
What is the key NPA definition under these guidelines?
An asset is classified as NPA if interest or principal is overdue for 180 days or more from the date of acquisition or the contractual due date, whichever is later.
Does this circular apply to trusts created by SCs/RCs?
Yes, but certain provisions like owned fund, permissible business, and prudential norms do not apply to those trusts, as specified in paragraph 2 of the circular.
What is the 'fair value' for asset valuation?
Fair value is defined as the mean of the earning value and the break-up value of the asset.