RBI issues notification w.r.t “Provisioning Requirement for Investment in Security Receipts”; lending institutions to put in place a board approved plan to ensure compliance to prescribed provisioning requirements
The Reserve Bank of India has issued a notification regarding “Provisioning Requirement for Investment in Security Receipts (SRs)”.
In order to provide a glide path to the entities which were kept out of the ambit of circular “Guidelines on Sale of Stressed Assets by Banks” dated September 1, 2016 and ensure smooth implementation of clause 77* of the Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 (“MD-TLE”), RBI has advised as under in respect of valuation of investments in SRs outstanding on September 24, 2021 (i.e., the date of issuance of MD-TLE):
-
- In order to provide a glide path to the entities which were kept out of the ambit of circular “Guidelines on Sale of Stressed Assets by Banks” dated September 1, 2016 and ensure smooth implementation of clause 77* of the Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 (“MD-TLE”), RBI has advised as under in respect of valuation of investments in SRs outstanding on September 24, 2021 (i.e., the date of issuance of MD-TLE):
-
- a. The difference between the carrying value of such SRs and the valuation arrived at as on the next financial reporting date after the date of issuance of MD-TLE, in terms of clause 77 of the MD-TLE, may be provided over a 5-year period starting with the financial year ending March 31, 2022 – i.e. from FY2021-22 till FY2025-26.
-
- b. Subsequent valuations of investments in such SRs on an ongoing basis shall, however, be strictly in terms of the provisions of MD-TLE.
Further, all lending institutions have been directed to put in place a board approved plan to ensure that the provisioning made in each of the financial years in compliance of clause (a) above is not less than one fifth of the required provisioning on this count.
Valuation of investments in SRs made after the issuance of MD-TLE shall be strictly in terms of the provisions thereunder.
_________________
Clause 77 of the MD-TLE : Investments by lenders in SRs / PTCs / other securities issued by ARCs shall be valued periodically by reckoning the Net Asset Value (NAV) declared by the ARC based on the recovery ratings received for such instruments.
Source: Reserve Bank of India
