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|May 13, 1998||
RBI modifies NBFC prudential norms
Non-banking finance companies must consider the value of underlying assets while making provisions for non-performing assets in hire purchase and lease assets, the Reserve Bank of India has directed.
The apex court also barred NBFCs from creating new assets by granting fresh loans or investments as long as they do not repay public deposits.
The RBI modified the prudential norms with regard to accounting for investments and provisions and against NPAs in line with the accounting standard issued by the Institute of Chartered Accountants.
The new norms would take effect from January 31.
The earlier norms for hire purchase and lease assets did not take into account the value of underlying asset. Consequently, the entire amount of overdue installments, net of the finance charges not taken to the credit of profit and loss account, was to be fully provided for.
"Due credit has now been given under the revised norms to the value of underlying asset," an RBI release said on Tuesday.
"Following the modification, an NBFC will now require 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," an industry source said.
As advised by the ICAI, the earlier bifurcation of long term investments into quoted and unquoted investments has also been done away with. Thus, only the unquoted equity shares in the nature of current investments are required to be valued at cost or break-up value, whichever is lower. The companies also have the option to value these shares at their fair value.
However, all long-term investments including unquoted investments will be valued in accordance with the ICAI accounting standards.
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