The RBI has tightened the asset classification status of overdue payments in respect of derivative transactions and re-structuring of derivative contracts. The overdue receivables representing positive mark-to-market value of a derivative contract will be treated as a non-performing asset if these remain unpaid for 90 days or more. “In that case all other funded facilities granted to the client will also be classified as non-performing asset following the principle of borrower-wise classification as per the existing asset classification norms,” the RBI said on Monday. “If the client concerned is also a borrower of the bank enjoying a cash credit or overdraft facility from the bank, the receivables may be debited to that account on due date and the impact of its non-payment would be reflected in the cash credit/overdraft facility account. The principle of borrower-wise asset classification would be applicable here also, as per extant norms,” it said.In cases where the contract provides for settlement of the current mark-to-market value of a derivative contract before its maturity, only the current credit exposure (not the potential future exposure) will be classified as a non-performing asset after an overdue period of 90 days.Banks allowed to take trading positions in IRFThe RBI has decided to allow banks to take trading positions in interest rate futures (IRF). Earlier, banks were permitted to transact in IRFs for the purpose of hedging the risk in their underlying investment portfolio. IRF is expected to kick off by early 2009.
