The full portfolio disclosure by UTI also revealed the non-performing assets. And on delving deeper into some of the large NPA classification revealed that, though classified as an NPA, they really may not be.
And a case in point is Essar Steel, to which the Rs. 479.55 crore worth of debt has been marked as NPA, but according to UTI sources may not necessarily be an NPA, but has been classified following the new guideline perhaps on account of delayed payment of interest. And it may not be a write-off case.
As the new SEBI guideline on valuation of securities for mutual funds, which came in effect from October 1, 2001 is fairly stringent as regards the classification of non-performing asset. The new guideline defines as asset' as non-performing, if the interest and/or principal amount have not been received or remained outstanding for one quarter from the day such income/installment has fallen due.
And the definition of NPA may be applied after a quarter past due date of the interest. For e.g. if the due date for interest is 30.06.2000, it will be classified as NPA from 01.10.2000. It has also set rules for treatment of income accrued on the NPA and further accruals. After the expiry of the 1st quarter from the date the income has fallen due, there will be no further interest accrual on the asset i.e. if the due date for interest falls on 30.06.2000 and if the interest is not received, accrual will continue till 30.09.2000 after which there will be no further accrual of income. In short, taking the above example, from the beginning of the 2nd quarter there will be no further accrual on income.
On classification of the asset as NPA from a quarter past due date of interest, all interest accrued and recognized in the books of accounts of the Fund till the date, should be provided for. For e.g. if interest income falls due on 30.06.2000, accrual will continue till 30.09.2000 even if the income as on 30.06.2000 has not been received. Further, no accrual will be done from 01.10.2000 onwards. Full provision will also be made for interest accrued and outstanding as on 30.06.2000.
Beyond classification of NPA, the guideline has set clear provisioning rules as well and rules for reclassification of assets, when they turn good.