On Risk Management System in Banks, Scheduled Commercial Banks (SCBs) and Urban Co-operative Banks (UCBs) are required to put in place a board-approved credit policy, which, among other things, should prescribe the periodicity and methodology of review/renewal of credit facilities. As per RBI guidelines, regular and ad-hoc credit limits need to be reviewed/regularised not later than three months from the due date/date of ad-hoc sanction. In case of constraints such as non-availability of financial statements and other data from the borrowers, the branch should furnish evidence to show that renewal/review of credit limits is already on and would be completed soon. In any case, delay beyond six months is not considered desirable as a general discipline. Hence, an account where the regular/ad-hoc credit limits have not been reviewed or have not been renewed within 180 days from the due date/date of ad-hoc sanction will be treated as NPA, which period will be reduced to 90 days with effect from March 31, 2004. The policy should also prescribe differential time schedules for review/renewal of borrower limits so that lower-rated borrowers whose financials show signs of problems are subjected to renewal control more frequently. Banks must have a detailed Board approved policy on methodology and periodicity for review/renewal of credit facilities within the overall regulatory guidelines and strictly stick to the approved policy. An account where the regular/ad-hoc credit limits have not been reviewed/renewed within the prescribed timeline from the due date/date of ad-hoc sanction will be treated as Non-Performing Asset (NPA) in terms of the master circular dated July 2015.
On Tuesday (August 25, 2020) Central Bank expressed its anxiety that “an analysis of practices followed by the lenders while reviewing/renewing credit facilities has brought out certain supervisory concerns, including that of frequent/repeated ad-hoc review/renewal of credit facilities instead of regular review/renewals, non-capturing and/or inaccurate capturing of review/renewal data in the banking/information systems, and non-coverage of review/renewal activities under the concurrent audit/internal audit mechanism”. In this connection, the Central Bank reiterated that timely and comprehensive review/renewal of credit facilities should be an integral part of the Board approved loan policy and credit risk management framework. Banks are further asked to avoid frequent and repeated ad-hoc/short review/renewal of credit facilities without justifiable reasons. Banks are also advised to capture all the data relating to regular as well as ad-hoc/short review/renewal of credit facilities in their core banking systems/management information systems and make the same available for scrutiny as and when required by any audit or inspection by Auditors/RBI. Further, the processes governing review/renewal of credit facilities should be brought under the scope of concurrent/internal audit/internal control mechanism of banks with immediate effect and follow the above instructions in letter and spirit.
