NHB (ND)/DRS/REGU/DIR-01/      /2004

January 01, 2004

To

All Housing Finance Companies

Dear Sir,

Housing Finance Companies (NHB) Directions 2001: phasing out of additional provisioning requirement consequent on change in norms relating to asset classification and NPA

In terms of the amendment carried out to the captioned directions vide Notification No. NHB. HFC.DIR.3/CMD/2002 dated December 27, 2002, an asset becomes non-performing asset [NPA] if interest or instalment is over due for 90 days (instead of 180 days) commencing from March 31, 2005. Similarly, from that date, an asset which has been classified as NPA for a period not exceeding 12 months (2 years as of now) shall be sub-standard and an asset which remains sub-standard for a period exceeding 12 months(2 years as of now) shall be doubtful assets.

In order to mitigate the burden of additional provisioning arising out of adoption of the above revised norms, housing finance companies are permitted to phase out the additional provisioning over a period of three years commencing from the year ending 31.3.2005 with a minimum of 20% of the additional provisioning required being made each year. HFCs are also advised to start making additional provisions for such loans starting from the year ending 31-03-2004 which would strengthen their balance sheets and ensure smooth transition to the revised norms coming into effect from March 31, 2005.

Yours faithfully,

Sd/-

Deputy General Manager
Department of Regulation & Supervision