On July 26, 2001, the Ministry of Law, Justice, and Company Affairs issued a notification outlining prudential norms for companies designated as Nidhis or Mutual Benefit Societies under the Companies Act, 1956. The Central Government mandates that these entities must follow specific guidelines regarding revenue recognition and asset classification, particularly concerning mortgage and jewel loans. Income from non-performing assets can only be recognized when actually realized, necessitating the reversal of previously recognized unrealized income in the current profit and loss account.
The classification of assets includes various categories: standard assets require no provision, sub-standard assets require a provision of 10% of the outstanding amount, doubtful assets require 50%, and loss assets necessitate a full 100% provision. Additionally, specific definitions clarify what constitutes standard, sub-standard, doubtful, and loss assets based on repayment performance. For loans secured against jewellery and other assets, the outstanding amount must be recovered within three months of the due date. If repayment is not made, Nidhis must enforce claims against the collateral and provide 100% provisions for unrealized amounts in the current year’s profit and loss account.
GOVERNMENT OF INDIA
MINISTRY OF LAW, JUSTICE AND COMPANY AFFAIRS
DEPARTMENT OF COMPANY AFFAIRS
NOTIFICATION
New Delhi, 26th July, 2001
G.S.R. 556(E).- In exercise of the powers conferred by sub-section (1) of section 637 A of the Companies Act, 1956 (1 of 1956), the Central Government hereby directs that :-
1. Every company declared as a Nidhi or Mutual Benefit Society under section 620A of the Companies Act, (hereinafter referred to as such Nidhi or Mutual Benefit Society) after the publication of this notification shall adhere to the following prudential norms for revenue recognition and classification of assets in respect of mortgage loans / jewel loans, etc. namely: –
(i) Income including interest or any other charges on non-performing assets shall be recognised only when it is actually realised. Any such income recognised before the asset became non-performing and remaining unrealised shall be reversed in the current year’s profit and loss account
(ii) Classification of assets :
(a) Mortgage Loan
| NATURE OF ASSET | PROVISION REQUIRED |
| Standard Asset | No provision |
| Sub-standard Asset | 10% of the aggregate outstanding amount |
| Doubtful Asset | 50% of the aggregate outstanding amount* |
| Loss Asset | 100% of the aggregate outstanding amount |
Note – The estimated realisable value of the collateral security to which such Nidhi or the mutual benefit society has valid recourse may be reduced from the aggregate outstanding amount if the proceedings for sale of mortgaged property have been initiated in a court of law within the previous two years of
the interest, income or instalment remaining unrealised. In no case the value of collateral security would be more than the value assessed at the time of grant of loan. The provisions should be made out of current year’s profit and so distinctly disclosed in the current year’s profit and loss account .
Explanation : In this direction,-
(1) “Standard asset” means the asset in respect of which no default in repayment of principal or payment of interest is perceived and which does not disclose any problem nor carry more than normal risk attached to the business;
(2) “Sub-standard asset” will be that borrowal account which is a non performing asset. reschedulement or renegotiations or rephasement of the loan instalment or interest repayment would not change the classification of assets unless the borrowal account has satisfactorily performed for at least 12 months after such reschedulement or renegotiation or rephasement ;
(3) “Doubtful Asset” will be those borrowal account which remained non-performing for more than one year but upto two years.
(4) “Loss Asset” will be that borrowal account which remained non-performing for more than two years or where the documents executed may become invalid if subjected to legal processes, as per the opinion of the Nidhi, or its internal auditor or by the inspecting authority during the course of its inspection;
(5) “Non-performing asset” will be that borrowal account where interest income and/or instalment of loan towards repayment of principal amount remained unrealised for 12 months.
(b) Loans against jewellery, government securities or own deposits, etc.
The aggregate outstanding amount of loan granted against the security of gold, jewellery, Government securities and own deposits, should be recovered within next three months after the due date of repayment specified at the time of grant of such loans. In case of interest income and/or instalment of such loans remaining unrealised as per repayment schedule, the Nidhi should enforce its claim against the security within three months of such due date of repayment by the borrowers and make 100 percent provision to the extent of unrealised amount being the deficit in the current years profit and loss account.
2. The above prudential norms for revenue recognition and classification of assets shall be applicable to all Nidhi companies notified under section 620 A of the Companies Act, 1956 before or after the publication of this notification and to all potential Nidhi companies desiring to get Nidhi status under the said Act.
3. The Central Government if satisfied that the circumstances have arisen and if found in public interest, after recording the reasons in writing, may relax any of the directions mentioned above either generally or for any specified period, subject to such terms and conditions, as Government may specify, for avoiding any hardship to any Nidhi or a class of Nidhis .
[F.No. 5/7/2000-CL.V]
A. RAMASWAMY,
Joint Secretary
