What changed
RBI issued a consolidated version of the Mortgage Guarantee Companies Prudential Norms Directions, 2008, incorporating amendments up to June 30, 2010. The update brings all current instructions into one place for easier reference. No new policy changes were introduced; it is a compilation exercise.
What it means for you
Mortgage Guarantee Companies must ensure their prudential practices align with the updated definitions, especially for asset classification and net owned fund calculation. The NPA classification from trigger event and doubtful asset aging rules remain critical for provisioning. This circular simplifies compliance by providing a single reference document.
What you must do
- Review and update internal policies to match the consolidated prudential norms as of June 30, 2010.
- Ensure asset classification aligns with definitions: NPA from trigger event, doubtful after 12 months, and loss asset criteria.
- Recalculate net owned fund as per the formula, deducting investments and loans to subsidiaries/group companies exceeding 10% of equity and free reserves.
- Train compliance teams on the updated definitions, especially for hybrid debt capital instruments and owned fund components.
Who it affects
All Mortgage Guarantee Companies registered with RBI, Compliance officers of MGCs, Auditors reviewing MGC prudential norms
What is the trigger event for classifying a mortgage guarantee asset as NPA?
An asset acquired from a credit institution on the happening of a trigger event is straight away classified as a non-performing asset. Thereafter, it is classified based on its age.
How is net owned fund calculated under these directions?
Net owned fund is paid-up equity capital plus free reserves, minus accumulated losses, deferred revenue expenditure, and intangible assets. It is further reduced by investments in subsidiaries/group companies and loans to them exceeding 10% of the aggregate.
Does this circular introduce new requirements or just consolidate existing ones?
This circular consolidates all existing instructions from the February 2008 directions as amended up to June 30, 2010, into one document. It does not introduce new requirements.