RBI draft circular clarifies prudential treatment of SNFAs

Reserve Bank of India draft circular clarifies prudential treatment of SNFAs, requiring early auction, separate disclosure and limits on asset acquisition after loan defaults. The Reserve Bank of India (RBI) on Tuesday issued a draft circular to provide clarity on prudential treatment of specified non-financial assets (SNFA) acquired as collaterals in the case of defaults. The RBI define these assets as an immovable asset acquired by regulated entity in satisfaction or part satisfaction of its claims on the borrower, including nonbanking assets.

The regulator urged the entities to incorporate suitable clauses for acquisition of such assets and their disposal. These should include limit of these assets as a share of total assets, eligibility criteria, delegation matrix, recovery efforts to be explored before acquisition and maximum period for disposal. SNFA can only be acquired for a non-performing exposures to a borrower where other recovery options have been explored and found unviable, the RBI said. Upon acquisition, these assets should be recorded in the balance sheet at the lower of the net book value of the distress sale value, according to the draft. Regarding disposal, the RBI said that regulated entities should prioritise early disposal of these assets via public auction. The SNFA cannot be sold back to the borrower or its related parties, the regulator added.

Powered by Capital Market - Live News