NBFC NPA Provisioning RBI Norms India — Prudential Compliance 2026

NBFC NPA Provisioning RBI Norms India — Prudential Compliance 2026

RBI's prudential norms for NBFCs govern asset classification, income recognition, and provisioning. Under the Scale Based Regulation (SBR) framework introduced in 2022, NBFCs are classified into 4 layers (Base, Middle, Upper, Top) with progressively stringent requirements. All NBFCs — regardless of layer — must correctly identify NPAs, make adequate provision, and stop recognising interest income on NPAs.

Incorrect provisioning is a critical finding in RBI inspections — it inflates reported profit and misleads investors, creditors, and regulators.

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RBI Asset Classification Norms

Standard Asset
- Performing loan with no overdue beyond 90 days
- Provision: 0.25% of outstanding for all standard assets

Sub-Standard Asset
- Account has remained NPA (Non-Performing Asset) for 12 months or less
- Provision: 10% of outstanding (both secured and unsecured)

Doubtful Asset
- Account has remained sub-standard for more than 12 months
- Doubtful 1 (D1): NPA for 12-24 months — Provision: Secured 25%, Unsecured 100%
- Doubtful 2 (D2): NPA for 24-36 months — Provision: Secured 40%, Unsecured 100%
- Doubtful 3 (D3): NPA for 36+ months — Provision: Secured 100%, Unsecured 100%

Loss Asset
- Loan identified as uncollectable by the NBFC, auditor, or RBI
- Provision: 100%

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NPA Identification

90 DPD Rule
An account is classified as NPA when it is overdue for 90 days or more. Overdue = payment not received by the due date.

Exceptions
- Agricultural loans: 180 DPD for short-duration crops, 270 DPD for long-duration crops
- Government-guaranteed loans: special treatment in some cases

Upgrade from NPA
An NPA account can be upgraded to Standard only when all outstanding dues (principal, interest, fees) are cleared. Partial payment does not trigger upgrade.

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Income Recognition

For NPA accounts:
- Interest income must be reversed at the time of NPA classification
- Interest on NPA: recognised on cash basis only — when actually received
- Unrealised interest in income at the time of NPA = must be reversed
- Fee income: similarly reversed

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MICS NPA and Provisioning Features

Automated NPA Classification
- Daily DPD computation: for every loan account, days past due updated every day
- NPA trigger: at exactly 90 DPD, account flagged as NPA automatically
- Asset class assignment: Standard → Sub-Standard → Doubtful 1 → D2 → D3 → Loss as time in NPA increases
- Batch processing: nightly job classifies all accounts
- Override: compliance officer can manually classify as Loss for specific accounts

Provision Computation
- Standard assets provision: 0.25% of gross outstanding portfolio
- Sub-Standard: 10% of each sub-standard account outstanding
- Doubtful 1, 2, 3: applicable percentage based on secured vs. unsecured
- Loss: 100% of outstanding
- Total provision requirement computed daily
- Shortfall: current provision vs. required provision — alert if shortfall
- Excess: if provision exceeds requirement (after account upgrade or write-off)

Income Reversal on NPA
- At NPA classification: unrealised interest income reversed automatically
- NPA accounts: interest income booked on cash-received basis only
- System tracks: interest accrued but not received on each NPA account
- Journal entry generation: income reversal for accounting team

Collateral Assessment for Provisioning
- Secured accounts: realizable collateral value reduces provision requirement
- Collateral valuation: last valuation date and amount per account
- Collateral deduction: from outstanding before applying provision percentage
- Stale valuation alert: if property valuation is older than 1 year, flag for re-valuation

Scale Based Regulation Compliance
- NBFC Layer identification: Base Layer / Middle Layer / Upper Layer / Top Layer
- SBR-specific requirements: Middle Layer and above have additional provisions
- Capital adequacy: CRAR computed based on risk-weighted assets including provisioned NPAs

Board and Audit Committee Reporting
- Monthly NPA report: to MD/CEO
- Quarterly provision report: to Audit Committee
- Annual provisioning schedule: for financial statement disclosure
- Auditor support: provision computation supporting schedule ready for statutory audit

Write-Off Process
- Write-off recommendation: for accounts fully provided (Loss category)
- Approval: board or delegated authority
- Write-off execution: outstanding removed from books, provision released
- Recovery after write-off: any recovery credited to P&L as bad debt recovery

CIMS NPA Data
- CIMS monthly submission: NPA accounts classified per RBI format
- NPA rate: computed and included in CIMS submission
- Vintage analysis: when loans were originated vs. when they went NPA

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Pricing

- NPA and provisioning module: included in MICS NBFC software subscription
- Provisioning computation advisory (for existing NBFCs): Rs. 20,000 one-time
- NPA audit preparation: included in MICS compliance audit service

Free NPA provisioning consultation: +91 9355273535 | admin@mics.asia