RBI’s Regulations on Asset Qualification Norms

Representatives of microfinance institutions (MFIs) raised concerns with Ministry of Finance officials regarding the Reserve Bank of India’s (RBI’s) regulations on asset qualification norms, which have been increased from 75 per cent to 85 per cent of total assets.

The Reserve Bank of India (RBI) regulates asset qualification norms for banks, microfinance institutions (MFIs), small finance banks (SFBs), and non-banking financial companies (NBFCs):

• Asset Classification
  • Banks have to classify assets into four categories: Standard, Sub-standard, Doubtful, and Loss.
  • This classification is based on the credit exposure’s realizability and the duration of non-performance.
• Provisioning norms
  • Banks will need to keep a portion of their money in provisions to mitigate losses on non-performing assets.
• Asset qualifying norms for MFIs
  • Applicants for the NBFC-MFI license have to, as minimum, dedicate at least 75 percent of the assets towards microfinance.
• Asset qualifying norms for NBFCs
  • The minimum eligibility requirement for the NBFC is now fixed at 25 percent.
• NPAs
  • An account shall be classified as an NPA if:
    • Interest and/or principal installment are more than 90 days past due The account remains “out of order” The bill is more than 90 days past due SMA accounts Special mentioned.
    • SMA Accounts (SMAs) are accounts that indicate stress in the borrower’s repayment behavior.