RBI allows AIFIs to reverse excess provision on sale of non-performing assets

MUMBAI: The Reserve Bank today allowed financial institutions such as Exim Bank and Nabard to reverse the excess provision on sale of non-performing assets (NPAs) sold prior to February 26, 2014 to asset reconstruction companies to their profit and loss account.

The guidelines will be also applicable to National Housing Board and Sidbi.

"It has now been decided to permit All-India Term Lending and Refinancing Institutions (AIFIs) 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 Securitisation Company (SC)/Reconstruction Company (RC) to their profit and loss account," RBI said in a notification.

Net book value is the value at which an asset is carried on a balance sheet.

In the February this year RBI had extended similar kind of dispensation of reversing the excess provision on sale of NPAs sold prior to February 26, 2014 also.

Earlier, the reversing of excess provision on sale of NPAs was available only for NPAs sold on or after February 26, 2014.

"We re-iterate that All India Financial Institutions can reverse excess provision arising out of sale of NPAs only when the cash received is higher than the NBV of the NPAs sold to ARCs," RBI said.

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, RBI said.

The Central bank also asked these financial institutions to disclose the quantum of excess provision reversed to the profit and loss account on account of sale of NPAs in the financial statements in `Notes to Accounts'.