What changed
RBI issued a consolidated version of the Mortgage Guarantee Companies Prudential Norms Directions, 2008, incorporating all amendments up to June 30, 2012. The updated text replaces the original February 15, 2008 notification and is now available on the RBI website. No new policy changes were introduced; this is purely a compilation exercise.
What it means for you
Mortgage guarantee companies must now refer to this single updated document for all prudential norms, ensuring consistency in compliance. The definitions for asset classification (doubtful, loss, NPA) and net owned fund remain unchanged, so existing reporting and provisioning practices continue. This reduces ambiguity and helps auditors and regulators verify adherence to RBI guidelines.
What you must do
- Replace the old February 2008 notification with this updated version for all internal compliance references.
- Review your asset classification and provisioning policies to ensure alignment with the definitions (e.g., doubtful asset means an asset that remains sub-standard for a period exceeding 12 months).
- Update your net owned fund calculation as per the formula: aggregate of paid-up equity capital and free reserves minus accumulated losses, deferred revenue expenditure, and intangible assets; further reduced by investments in shares of subsidiaries, group companies, and all other NBFCs, and book value of debentures, bonds, loans, advances, and deposits with subsidiaries and group companies, to the extent such amount exceeds 10% of the aggregate in (a).
- Ensure your NPA recognition for mortgage guarantee assets follows the trigger event rule as specified.
Who it affects
All Mortgage Guarantee Companies registered with RBI, Compliance officers and auditors of mortgage guarantee firms, RBI's Department of Non-Banking Supervision
What is the key change in this circular?
This circular consolidates all amendments to the 2008 Prudential Norms Directions up to June 30, 2012, into one document. No new rules were added; it's an administrative update for ease of reference.
How does this affect NPA classification for mortgage guarantee assets?
The definition remains the same: an asset acquired from a credit institution upon a trigger event is immediately classified as NPA and then aged accordingly. No change in provisioning norms.
Do I need to recalculate net owned fund?
Only if your previous calculation did not follow the updated formula. The formula deducts investments in subsidiaries/group companies exceeding 10% of equity and free reserves, among other items.