RBI unveils revised norms on sale of NPAs to securitization/reconstruction companies

 
Announced on February 03, 2015. As indicated therein, it has now been decided to permit banks to reverse the excess provision (when the sale is for a value higher than the NBV) on sale of NPAs (sold prior to February 26, 2014 to SCs/RCs) to their profit and loss account. We reiterate that banks can reverse excess provision arising out of sale of NPAs only when the cash received (by way of initial consideration and/or redemption of security receipts/pass through certificates) is higher than the NBV
of the NPAs sold to SCs/RCs. Further, the quantum of excess provision reversed to profit and loss account will be limited to the extent to which cash received exceeds the NBV of the NPAs sold.

3. The quantum of excess provision reversed to the profit and loss account on account of sale of NPAs shall be disclosed in the financial statements of the bank under 'Notes to Accounts'.

ANNEX

Extracts from Sixth Bi-Monthly Monetary Policy Statement, 2014-15

28. Under the Framework for Revitalising Distressed Assets in the economy, banks were allowed in February 2014 to reverse the excess provision on sale of non-performing assets (NPAs) to securitisation companies/reconstruction companies when the cash received (by way of initial sale consideration and/or redemption of security receipts/pass-through certificates) is higher than the net book value (NBV) of the asset, with a view to incentivising banks to recover appropriate value in respect of their NPAs, subject to certain conditions. This dispensation was, however, available on a prospective basis, i.e., only with regard to NPAs sold on or after February 26, 2014. On a review and based on banks' representations in this regard, it has now been decided to extend the above dispensation to NPAs sold prior to February 26, 2014 also. Detailed guidelines to this effect will be issued shortly.

Deep Kumar Misra
B.Com., LL.B., F.C.A.