NBFC prudential norms modified

MUMBAI, May 12: The Reserve Bank of India on Tuesday directed non-banking finance companies NBFCs to take into account the value of underlying assets while making provisions for non-performing assets NPA in hire purchase and lease assets. It has also barred NBFCs from creating any new asset by granting fresh loans or making investments as long as they are defaulters in repayment of public deposits under Section 45QA1 of the RBI Act.

The central bank modified the prudential norms 8212; in regard to accounting for investments and provisions and against NPAs 8212; in line with the accounting standard issued by the Institute of Chartered Accountants ICAI. The modifications are effective from January 31. The earlier provisioning norms for hire purchase and lease assts did not take into account the value of underlying asset and consequently the entire amount of overdue instalments net of the finance charges not taken to the credit of profit and loss account was to be fully provided for. quot;Due credit has now beengiven under the revised norms to the value of underlying asset,quot; an RBI release issued on Tuesday said.

In effect, provisioning on account of non-performing hire purchase and lease assets has been phased out. This will have a positive impact on the NBFC balance sheet for the fiscal year 1998. quot;Following the modification, an NBFC will now be required to provide for Rs 46 instead of Rs 70 on account of a hire purchase and Rs 35 instead of Rs 67 on account of a lease asset in the first year,quot; an industry source said.

The RBI has also done away with the bifurcation of long term investments into quoted and unquoted investments. NBFCs are now required to value unquoted equity shares in the nature of current investments at cost or break-up value 8212; whichever is lower. They are also given the option to value these shares at their fair value. All long-term investments including unquoted investments, however, will be valued in accordance with the ICAI accounting standards, the RBI release said.