The Reserve Bank of India came out with final guidelines on Friday for the non-banking finance companies (NBFCs) with regard to the early detection and recovery of bad loans. The guidelines will be effective from April 1, 2014.

“Before a loan account turns into an NPA, NBFCs will be required to identify incipient stress in the account by creating a sub-asset category ‘special mention accounts’ (SMA),” the RBI said in a notification.
 The RBI has set up three categories of SMAs: SMA-0 - principal or interest payment not overdue for more than 30 days but account showing signs of incipient stress; SMA-1 - principal or interest payment overdue between 31-60 days; and SMA-2 - principal/ interest payment overdue for 61-180 days.

The RBI had earlier set up a Central Repository of Information on Large Credits (CRILC) to collect, store, and disseminate credit data to lenders.

It said that all systemically important NBFCs shall be required to report the relevant credit information on a quarterly basis to CRILC. The data includes credit information on all the borrowers having aggregate fund-based and non-fund based exposure of Rs 50 million and above.

The bank warned that if NBFCs fail to report SMA status of accounts to CRILC or resort to methods with intent to conceal actual status of accounts or evergreen the account, they will be subjected to accelerated provisioning for such accounts and other supervisory action.

If a lender, who has agreed to loan restructuring under the corrective action plan (CAP) by joint lender forum (JLF) and is a signatory to the Inter Creditor Agreement (ICA) and Debtor Creditor Agreement (DCA), but changes the stance later on, or delays or refuses to implement the package, it will also be subjected to accelerated provisioning requirement on exposure to this borrower classified as an NPA.

“Any such backtracking by a lender might attract negative supervisory view during supervisory review and evaluation process,” RBI warned.