RBI Refuses to Relax Asset Classification for NBFCs: Basics Explained

The Reserve Bank of India  has turned down the request of non-banking financial companies (NBFC) to relax asset classification and provisioning norms. RBI has turned down a plea by non-banking finance companies (NBFCs) for the easing of norms on income recognition, asset classification and provisioning.


Following the global international norms and as  per the recommendations made by the Committee on the Financial System (Chairman Shri M. Narasimham) RBI classify Non Performing Assets (NPA) and made provisions like prudential norms for income recognition, asset classification and provisioning for the advances portfolio of the banks.


An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank. NPA is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.

Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.

  1. Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.
  2. Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
  3. Loss assets: A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly.As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.

The Reserve Bank of India is the supreme monetary and banking authority in the country. It keeps the cash reserve of all scheduled banks and hence is known as Reserve Bank. It was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India. Its main function includes; formulate, implements and monitors the monetary policy, prescribes broad parameters of banking operations within which the country’s banking and financial system functions, Manages the Foreign Exchange Management Act, 1999, Issues and exchanges or destroys currency and coins not fit for circulation, Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. RBI Governor Shri Shaktikanta Das.

Substandard AssetsThese are the assets which have remained NPA for a period of less than or equal to 12 months
Doubtful AssetsIf the asset is in the substandard category for a period of 12 months
Loss AssetsThese assets are of little value, it can no longer continue as a bankable asset, there could be some recovery value.


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