IRAC NORMS OF RBI EXECUTION GUIDANCE ON CERTAIN

IRAC NORMS OF RBI, EXECUTION GUIDANCE ON CERTAIN IMPORTANT COMPLIANCES AND GUIDELINES FOR PREPARATION OF PROPER LFAR By: CA. MAHENDRA K. AGRAWALA, FCA, DISA(ICA) Email: magrawala@yahoo. com

INTRODUCTION • MASTER CIRCULAR CONCEPT SINCE LAST FEW YEARS HAS BEEN A FINE CONCEPT • ITS SIGNIFICANCE IN BANK AUDIT

CONTENTS OF MASTER CIRCULAR: THREE MAJOR ASPECTS IN THE MASTER CIRCULAR: • ASSET CLASSIFICATION • INCOME RECOGNITION • PROVISIONING

ASSET CLASSIFICATION • STANDARD – ADVANCE WHICH IS NOT NPA • NON-PERFORMING ASSETS (NPA) – LOAN OR ADVANCE CEASING TO GENERATE INCOME FOR THE BANK • THREE CATEGORIES OF CLASSIFICATION OF NPA: a) SUBSTANDARD ASSET – NPA FOR A PERIOD LESS THAN OR EQUAL TO 12 MONTHS FROM THE DATE OF NPA b) DOUBTFUL ASSET – SUBSTANDARD ASSET FOR A PERIOD OF 12 MONTHS OR MORE FROM THE DATE OF NPA AND LESS THAN 12 MONTHS IN CASE OF SERIOUS CREDIT IMPAIRMENT AND INADEQUATE SECURITY c) LOSS ASSET – IDENTIFIED AS UNCOLLECTIBLE WITH NEGLIGIBLE SALVAGE OR RECOVERY VALUE AND NOT WRITTEN OFF

CONT… • THREE ASPECTS OF CHECKING FROM NPA POINT OF VIEW: a) FRESH IDENTIFICATION b) PROPER MOVEMENT OF CLASSIFICATION FROM ONE CATEGORY TO ANOTHER FOR EXISTING NPAs c) UPGRADATION OF LOAN ACCOUNTS EARLIER CLASSIFIED AS NPA.

FRESH IDENTIFICATION BROADLY SIX CATEGORIES OF ADVANCES FROM NPA POINT OF VIEW: a) § LOANS WITH FIXED REPAYMENT PERIOD SUCH AS TERM LOANS, PERSONAL LOANS, DEMAND LOANS IF INSTALLMENT OR INTEREST BECOMES OVERDUE FOR MORE THAN 90 DAYS.

CONT… b) CASH CREDIT/OVERDRAFT, LOANS REPAYABLE ON DEMAND § IF OUT OF ORDER IN ANY OF THE FOLLOWING THREE SITUATIONS: o OUTSTANDING BALANCE CONTINUOUSLY IN EXCESS OF SANCTIONED LIMITS FOR MORE THAN 90 DAYS o OUTSTANDING BALANCE CONTINUOUSLY IN EXCESS OF THE DRAWING POWER FOR MORE THAN 90 DAYS o NO CREDITS OR CREDITS NOT ENOUGH DURING 90 DAYS TO COVER INTEREST DEBITED DURING SUCH 90 DAYS.

CONT… c) BILLS PURCHASED AND DISCOUNTED § IF THE BILL PURCHASED OR DISCOUNTED BECOMES OVERDUE FOR MORE THAN 90 DAYS d) CROP LOANS § PRINCIPAL OR INTEREST OVERDUE FOR TWO CROP SEASONS IN CASE OF SHORT DURATION CROPS AND OVERDUE FOR ONE CROP SEASON FOR LONG DURATION CROPS e) PROJECT LOANS f) RESTRUCTURED ADVANCES

ACTION POINTS: FOR FIRST FOUR CATEGORIES A) PLANNING • DECIDE THE CUTOFF LIMIT ABOVE WHICH THE ADVANCES ARE TO BE CHECKED BY GOING THROUGH THE BORROWER WISE ADVANCES STATEMENT AS ON 31 ST MARCH. • IN CASE OF BILLS PURCHASED & DISCOUNTED, TAKE A PRINTOUT OF THE BILLS OVERDUE AS ON 31 ST MARCH FOR MORE THAN THREE MONTHS OR GO THROUGH THE BILLS PURCHASED REGISTER TO IDENTIFY SUCH OVERDUE BILLS.

CONT… B) TERM LOANS: • GO THROUGH THE TERMS OF SANCTION AND MATHEMATICALLY CALCULATE THE “SHOULD BE" BALANCE AS ON 31 ST MARCH, AS PER TERMS OF SANCTION AND COMPARE WITH THE ACTUAL BALANCE. • IN CASE OF ACTUAL BALANCE BEING HIGHER, ENSURE THAT THE DEFAULT OF PRINCIPAL INSTALLMENT OR INTEREST NOT MORE THAN 90 DAYS. • IN CASE OF MORATORIUM PERIOD EITHER AT THE TIME OF SANCTION OR SUBSEQUENTLY, 90 DAYS TO BE CALCULATED AFTER THE MORATORIUM IS OVER.

CONT… • • • CHECKUP WHETHER MORATORIUM IS FOR INTEREST ALSO. FOR INSTANCE, LOANS TO STAFF MEMBERS. IN CASE OF FIXED INSTALLMENTS INCLUDING BOTH PRINCIPAL & INTEREST AND MORATORIUM ALLOWED SUBSEQUENT TO SANCTION, ENSURE THAT THE ORIGINAL INSTALLMENTS ARE RECOMPUTED. OBTAIN THE LIST OF POTENTIAL NPA HAVING IRREGULARITIES BUT NOT EXCEEDING 90 DAYS AND EXAMINE SUCH ACCOUNTS MORE THOROUGHLY. THIS LIST IS USEFUL FOR OTHER CATEGORIES OF ADVANCES ALSO.

CONT… • AS PER RBI GUIDELINES ALMOST ALL THE BANKS HAVE GONE FOR SYSTEM DRIVEN NPA STATEMENTS WHERE ENSURE THAT ALL THE ACCOUNTS SHOWN AS NPA IN THE STATEMENT ARE ACTUALLY NPA AND ACCORDINGLY CLASSIFIED. THIS ACTION IS REQUIRED FOR OTHER CATEGORIES ALSO.

CONT… C) CASH CREDITS: • OBTAIN THE EXCESS REPORT REFLECTING THE ACCOUNTS WHERE EXCESS REGULARLY ALLOWED. • OBTAIN THE CREDIT SUMMATION REPORT OF MAJOR ADVANCES. • ENSURE THAT THE CREDIT SUMMATION IN ANY ACCOUNT IN ANY QUARTER IS NOT LESS THAN THE INTEREST DEBITED DURING THE QUARTER. • CHECK THE MONTH WISE DRAWING POWER AMOUNT ENTERED IN THE DP REGISTER WITH REFERENCE TO THE DETAILS IN THE STOCK/BOOK DEBTS STATEMENTS, TERMS OF SANCTION, SUNDRY CREDITORS DECLARED OR NOT PROPERLY DECLARED IN THE STOCK/BOOK DEBTS STATEMENT, LAST AUDITED BALANCE SHEET.

CONT… • • OBTAIN THE STOCK AUDIT REPORTS WHEREVER APPLICABLE AND ENSURE THAT THE DRAWING POWER IS ADJUSTED TO THE EXTENT OF ADJUSTMENT TYPE OBSERVATIONS IN THE REPORT. ENSURE THAT THE DRAWING POWER CALCULATION DOES NOT CONSIDER THE OLD STOCKS & OLD DEBTORS AS PER THE TERMS OF SANCTION. MATHEMATICALLY CALCULATE WHERE OLD DETAILS NOT GIVEN.

CONT… • • IN CASE OF C/C ACCOUNTS HAVING LARGE TRANSACTIONS MAKING SCANNING DIFFICULT, PREPARE A MONTH WISE TABLE OF THE DRAWING POWER, SANCTIONED LIMIT AND THE MINIMUM BALANCE OUTSTANDING FOR THE MONTH. IF THE MINIMUM BALANCE IS MORE THAN THE SANCTIONED LIMIT OR DRAWNG POWER FOR MORE THAN THREE MONTHS, THEN THE ACCOUNT IS NPA.

CONT… D) BILLS PURCHASED & DISCOUNTED: • OBTAIN BILL PURCHASED/DISCOUNTED REGISTER HAVING THE DETAILS OF DATE OF PURCHASE/ DISCOUNT, DUE DATES, DATE OF PAYMENT. • IDENTIFY THE BILLS HAVING GAP OF MORE THAN 90 DAYS BETWEEN DUE DATE AND THE CLOSING DATE. • FOREIGN BILLS OVERDUE FOR LESS THAN 90 DAYS ARE CRYSTALLIZED AT TIMES THROUGH RUPEE PAYMENTS TO AVOID NPA AND IN SUCH CASES, CONCESSIONAL INTEREST RATES FOR EXPORT CREDITS TO BE WITHDRAWN.

CONT… E) CROP LOAN: • OBTAIN THE HARVESTING DATES OF BOTH SHORT DURATION AND LONG DURATION CROPS AFTER WHICH THE LOANS TAKEN ARE NORMALLY REPAID. • ENSURE THAT THE OUTSTANDINGS ARE CLEARED BEFORE THE END OF : 1. 2. • TWO CROP SEASONS SUBSEQUENT TO THE CROP SEASON IN WHICH THE LOANS TAKEN FOR SHORT DURATION CROPS BEFORE THE END OF ONE CROP SEASON SUBSEQUENT TO THE CROP SEASON IN WHICH THE LOANS ARE TAKEN FOR LONG DURATION CROP. SPECIAL RELAXATION AT TIMES GIVEN BY RBI FOR NATURAL CALAMITIES WHERE THE DUE DATES GET ACCORDINGLY CHANGED.

SOME OTHER IMPORTANT POINTS RELATED TO FRESH IDENTIFICATION: • • 90 DAYS CRITERIA NOT APPLICABLE TO ADVANCES AGAINST TERM DEPOSITS, NSC, KVP, IVP AND LIFE POLICIES PROVIDED ADEQUATE MARGIN IS AVAILABLE IN THE ACCOUNTS. ADVANCES AGAINST GOLD ORNAMENTS, GOVT. SECURITIES AND ALL OTHER SECURITIES ARE VERY MUCH COVERED UNDER 90 DAYS CRITERIA. SOLITARY OR FEW CREDITS IN THE ACCOUNTS BEFORE COMPLETION OF 90 DAYS IRREGULARITY PREVENTING THE ACCOUNT FROM BECOMING NPA MAY BE IGNORED IN ACCOUNTS HAVING CHRONIC FINANCIAL WEAKNESSES. CREDITS IN THE ACCOUNT PREVENTING THE NPA SITUATION SHOULD NOT BE OUT OF AD HOC SANCTION/ADDITIONAL FACILITIES GRANTED.

CONT… • • L/C DEVOLVEMENT IF PARKED IN SEPARATE ACCOUNTS ARE TO BE AGGREGATED WITH THE BALANCES IN MAIN ACCOUNT TO CHECK 90 DAYS OUT OF ORDER STATUS. ONE FACILITY BECOMING NPA EVEN IF SMALLEST SHALL MAKE ALL OTHER FACILITIES OF THE BORROWER NPA OTHER THAN THE BILLS DISCOUNTED UNDER LC : o o SHALL NOT BE NPA TILL NON-ACCEPTANCE OF THE PRESENTATION OF DOCUMENTS UNDER LC BY THE DRAWEE OR PAYMENT UNDER LC NOT MADE BY DUE DATE IN CASE OF ADVANCES TO PACS AND FSS UNDER THE ONLENDING SYSTEM, ONLY THE PARTICULAR FACILITY OVERDUE AS PER NPA NORMS SHALL BECOME NPA.

CONT… • ACCOUNTS WITH DEFICIENCIES SUCH AS OUTSTANDINGS EXCEEDING SANCTIONED LIMITS/ DRAWING POWER, NON SUBMISSION OF STOCK STATEMENTS, NON RENEWAL OF LIMITS ETC. FOR TEMPORARY PERIOD NEED NOT BE IDENTIFIED AS NPA. • NON SUBMISSION OF STOCK STATEMENTS FOR MORE THAN SIX MONTHS SHALL MAKE THE ACCOUNT NPA. • NON RENEWAL OF REGULAR LIMITS AND NON REGULARIZATION OF AD HOC LIMITS FOR MORE THAN 180 DAYS FROM THE DUE DATE SHALL MAKE THE ACCOUNT NPA.

CONT… • CONSORTIUM ADVANCES: o THE RECORD OF RECOVERY OF THE INDIVIDUAL BANK IRRESPECTIVE OF THE STATUS IN OTHER MEMBER BANKS. EXPRESS CONSENT FROM THE LEAD BANK FOR THE TRANSFER OF SHARE OF RECOVERY IS SUFFICIENT. • CENTRAL GOVERNMENT GUARANTEED ADVANCES EVEN IF OVERDUE FOR MORE THAN 90 DAYS NEED NOT BE NPA TILL THE INVOCATION OF GUARANTEE AND REPUDIATION BY GOVERNMENT. o

PROJECT LOANS • • • FOR INFRASTRUCTURE PROJECTS FOR NON-INFRASTRUCTURE PROJECTS FOR COMMERCIAL REAL ESTATE EXPOSURES (CRE)

PROJECT LOANS FOR INFRASTRUCTURE PROJECTS • INFRASTRUCTURE SECTOR AS DEFINED IN EXTANT – RBI CIRCULAR DT 29/11/2013 • NPA IF COMMERCIAL OPERATION NOT COMMENCED WITHIN TWO YEARS FROM THE DATE OF ORIGINAL DCCO UNLESS FRESH DCCO IS FIXED AS PER RBI GUIDELINES • NPA IF RESTRUCTURED ANYTIME FOR REASONS OTHER THAN DCCO AND NOT ELIGIBLE FOR SPECIAL REGULATORY TREATMENT AS PER PARA 15 OF MASTER CIRCULAR • NORMAL 90 DAYS CRITERIA FOR NPA IS ALSO APPLICABLE

CONT… • FRESH FIXATION OF DCCO o APPLICATION TO BE RECEIVED BEFORE THE EXPIRY OF 2 YEARS FOR EXTENSION UPTO ANOTHER 2 YEARS IN CASE OF COURT/ARBITRATION CASES AND UPTO ANOTHER 1 YEAR INCASE OF REASONS BEYOND THE CONTROL OF PROMOTERS AND THE PROPOSED DCCO ACCORDINGLY REFIXED BY THE BANK o SECOND OR MULTI TIME REFIXATION OF DCCO – CONSIDERED AS REPEATED RESTRUCTURING EARLIER AND HENCE NPA BUT PRESENTLY SECOND OR MULTITIME REFIXATION OF DCCO WHERE FRESH DCCO FIXED IS WITHIN THE ABOVE LIMITS (UPTO 2 YEARS FROM ORIGINAL DCCO EARLIER) IS NOT RESTRUCTURING AND HENCE NOT NPA.

CONT… • IN CASE OF INFRASTRUCTURE PROJECTS MAINLY ROAD SECTOR, CHANGE IN APPOINTED DAY AS PER CONCESSION AGREEMENT LEADING TO CHANGE IN DCCO IS NOT RESTRUCTURING UNDER THE FOLLOWING CIRCUMSTANCES. o BEING INFRASTRUCTURE PROJECT UNDER PPP MODEL AWARDED BY PUBLIC AUTHORITY o DISBURSEMENT NOT STARTED o SUPPLEMENTARY AGREEMENT FOR CHANGE IN DCCO o VIABILITY REASSESSED AND SANCTIONED FROM COMPETENT AUTHORITY

PROJECT LOANS FOR NON – INFRASTRUCTURE SECTOR • ALL THE POINTS ARE SIMILAR TO INFRASTRUCTURE EXCEPT THAT THE ALLOWED DELAY OF 2 YEARS FROM THE ORIGINAL DCCO IS 1 YEAR AND INCASE OF REFIXATION OF DCCO, FURTHER EXTENDABLE PERIOD IS ONE YEAR ONLY.

COMMERCIAL REAL ESTATE EXPOSURES • GENERALLY NPA ON THE FIRST RESTRUCTURING ITSELF AS THE ASSET CLASSIFICATION BENEFIT LIKE OTHER LOANS IN PARA 15 OF MASTER CIRCULAR NOT AVAILABLE • EXTENSION OF DCCO NOT TO BE CONSIDERED AS RESTRUCTURING IF FRESH DCCO FALLS WITHIN ONE YEAR FROM THE ORIGINAL DCCO

OTHER ISSUES IN PROJECT LOANS REPAYMENT SCHEDULE: • ANY CHANGE IN REPAYMENT SCHEDULE DUE TO INCREASE IN PROJECT OUTLAY ON ACCOUNT OF INCREASE IN SCOPE AND SIZE OF THE PROJECT IS NOT RESTRUCTURING UNDER CERTAIN CONDITIONS • INCREASE BEFORE DCCO • COST OVERRUN IS 25% OR MORE THAN ORIGINAL OUTLAY • VIABILITY IS REASSESSED • NEW RATING NOT BELOW THAN PREVIOUS RATING BY MORE THAN ONE NOTCH.

COST OVERRUNS: • • EXTENSION OF DCCO LOANS LEADS TO COST OVERRUNS AND ANY ADDITIONAL FINANCE FOR COST OVERRUNS USED TO BE RESTRUCTURING EARLIER BUT NOW AS PER RBI CIRCULAR DT 14. 08. 2014 PROVIDED FOLLOWING CONDITIONS ARE FULFILLED ADDITIONAL FINANCE CONSISTS OF ADDITIONAL INTEREST DURING CONSTRUCTION AND OTHER COST OVERRUNS EXCLUDING INTEREST UPTO MAXIMUM 10% OF ORIGINAL PROJECT COST. P/E RATIO SHOULD BE SAME OR BETTER AND REVISED DSCR SHOULD BE ACCEPTABLE TO THE BANK. DISBURSEMENT TO START ONLY AFTER PROMOTERS CONTRIBUTION OF HIS SHARE. ALL OTHER TERMS TO REMAIN SAME.

RESTRUCTURING OF ADVANCES • UNDER CDR MECHANISM • UNDER NON-CDR MECHANISM • UNDER SME DEBT RESTRUCTURING MECHANISM

GENERAL PRINCIPLES FOR RESTRUCTURING UNDER ALL MECHANISM • ASSET CLASSIFICATION STATUS ON THE DATE OF APPROVAL OF RESTRUCTURED PACKAGE IS RELEVANT TO DECIDE ASSET CLASSIFICATION AFTER RESTRUCTURING • EVEN THOUGH UNDER RESTRUCTURING, USUAL CLASSIFICATION NORMS OF 90 DAYS CRITERIA TO APPLY TILL THE APPROVAL. • CONSENT OF THE BORROWER FOR THE CHANGES IS A MUST – • ONLY FINANCIAL VIABLE PROJECTS NEED TO THE RESTRUCTURED • FRAUDULENT BORROWERS NOT ELIGIBLE FOR RESTRUCTURING BUT WILLFUL DEFAULTERS MAY BE ELIGIBLE WITH BOARD’S APPROVAL • BIFR CASES ARE NOT ELIGIBLE WITHOUT THEIR EXPRESS APPROVAL

ASSET CLASSIFICATION NORMS FOR RESTRUCTURED ACCOUNTS • • • STANDARD ASSETS ON RESTRUCTURING OTHER THAN DCCO REFIXATION IS CLASSIFIED AS SUBSTANDARD IF SPECIAL REGULATORY TREATMENT UNDER PARA 15 OF MASTER CIRCULAR NOT AVAILABLE NPA ACCOUNTS AFTER RESTRUCTURING SHALL CONTINUE IN THE SAME CLASSIFICATION OR FURTHER LOWER CLASSIFICATION AS PER EXTANT NORMS TILL ONE YEAR AFTER WHICH IN CASE OF SATISFACTORY PERFORMANCE, MAY BE UPGRADED IF SATISFACTORY PERFORMANCE AFTER THE SPECIFIED PERIOD NOT EVIDENCED, THEN RESTRUCTURING PACKAGE IS CONSIDERED AS FAILED AND THE ASSET CLASSIFICATION TO BE AS PER PRE-RESTRUCTURING REPAYMENT SCHEDULE SECOND TIME RESTRUCTURING OTHER THAN DCCO CASES SHALL MAKE THE STANDARD AS NPA UNDER ALL CIRCUMSTANCES ADDITIONAL FINANCE TREATED AS STANDARD ASSET TILL THE END OF THE SPECIFIED PERIOD

SPECIAL REGULATORY TREATMENT UNDER PARA 15 OF MASTER CIRCULAR: • NOT AVAILABLE TO CONSUMER AND PERSONAL ADVANCES, CAPITAL MARKET AND COMMERCIAL REAL ESTATE EXPOSURES. • ASSET CLASSIFICATION BENEFIT OF RETENTION IN PRERESTRUCTURING CATEGORY IS AVAILABLE SUBJECT TO FOLLOWING CONDITIONS: 1. DUES FULLY SECURED EXCEPT IN CASE OF MSE BORROWERS UP TO RS. 25 LAKHS AND INFRASTRUCTURE HAVING CASH FLOWS UNDER THE CONTROL OF BANK BEING MORE THAN ADEQUATE FOR REPAYMENT OF ADVANCE. 2. VIABLE IN 8 YEARS FOR INFRASTRUCTURE AND 5 YEARS FOR OTHERS. 3. REPAYMENT PERIOD INCLUDING MORATORIUM NOT TO EXCEED 15 YEARS FOR INFRASTRUCTURE AND 10 YEARS FOR OTHER ADVANCES OTHER THAN HOME LOANS WHERE BOARD HAS TO PRESCRIBE MAXIMUM PERIOD.

CONT… 4. 5. 6. 7. 8. PROMOTERS SACRIFICE AND ADDITIONAL FUNDS BY PROMOTERS SHALL BE MINIMUM OF 20% OF THE BANK’S SACRIFICE OR 2 % OF THE RESTRUCTURED DEBT WHICHEVER IS HIGHER. PROMOTERS SACRIFICE SHOULD BE FULLY BROUGHT UPFRONT. PROMOTER’S CONTRIBUTION CAN BE IN CASH AND ALSO THROUGH DE-RATING OF EQUITY, CONVERSION OF LOAN INTO EQUITY ETC. NOT A REPEATED RESTRUCTURING THE ABOVE DISPENSATION FOR THE STANDARD ASSET TO CONTINUE IN THE SAME CATEGORY IS WITHDRAWN FOR ALL THE RESTRUCTURING EFFECTIVE FROM 1 ST APRIL, 2015 THE ACCOUNTS SUBJECT TO RESTRUCTURING SHALL BECOME NPA IF APPROVAL IS NOT OBTAINED BY 31 ST MARCH 2015 DESPITE GOOD RECORD OF RECOVERY.

CONT… • INCENTIVE FOR QUICK IMPLEMENTATION OF PACKAGE. • WITHIN 120 DAYS FROM THE DATE OF APPROVAL UNDER CDR. • WITHIN 120 DAYS FROM THE DATE OF RECEIPT OF APPLICATION BY THE BANK IN CASES OTHER THAN CDR. • USUAL CLASSIFICATION NORMS TO APPLY DURING THE PENDENCY OF THE IMPLEMENTATION OF PACKAGE AND ONCE IMPLEMENTED WITHIN THE TIME SCHEDULE THEN ASSET CLASSIFICATION TO BE RESTORED TO THE POSITION WHICH EXISTED ON REFERENCE TO CDR AND IN NON – CDR CASES ON THE DATE OF RECEIPT OF APPLICATION BY THE BANK.

OTHER POINTS IN RESTRUCTURING • CDR MECHANISM APPLICABLE TO BORROWERS ENJOYING CREDIT FACILITIES FROM MORE THAN ONE BANK / FI AND OUTSTANDING (BOTH FB AND NON FB) IS RS. 10 CRS AND ABOVE. • SME DEBT RESTRUCTURING MECHANISM APPLICABLE TO TOTAL EXPOSURES OF LESS THAN RS. 10 CRS FOR ALL TYPES OF BORROWERS FOR WHICH BOARD MAY FORMULATE THE SCHEME WITHIN PRUDENTIAL NORMS OF RBI.

PROPER MOVEMENT OF CLASSIFICATION FROM ONE CATEGORY TO ANOTHER FOR EXISTING NPAs: TO HAVE A COPY OF NPA ACCOUNTS INCLUDING NPAS AND MOCS OF THE PREVIOUS YEARS AND THEN CHECK THE FOLLOWINGS: • • • CHECK THE PROPER SHIFTING FROM ONE CATEGORY TO ANOTHER DEPENDING UPON THE DATE OF NPA AS PER RBI GUIDELINES CHECK WHETHER STOCK AUDIT AT REGULAR ANNUAL INTERVALS HAS BEEN CONDUCTED FOR NPAS OF 5 CRS AND ABOVE. CHECK WHETHER THE VALUATION OF COLLATERALS SUCH AS IMMOVABLE PROPERTIES IS NOT MORE THAN THREE YEARS OLD SHIFTING FROM ONE CATEGORY TO ANOTHER BASED ON SERIOUS CREDIT IMPAIRMENT OR HEAVY EROSION IN THE VALUE OF SECURITY IRRESPECTIVE OF NPA DATE. SPECIAL ATTENTION FOR THE ACCOUNTS UPGRADED DURING THE YEAR.

UPGRADATION OF LOAN ACCOUNTS EARLIER CLASSIFIED AS NPA • UPGRADATION OF CURRENT YEAR’S NPA • UPGRADATION OF PREVIOUS YEAR’S NPAS • UPGRADATION OF ACCOUNTS OTHER THAN RESTRUCTURED ACCOUNT ONLY ON FULL REGULARISATION AND NOT THE RECOVERY OF CRITICAL AMOUNT • TREATMENT OF RECOVERIES IN YEAR END NPAS IN THE MONTH OF APRIL • RESTRUCTURED ACCOUNTS TO BE UPGRADED ONLY AFTER SATISFACTORY PERFORMANCE DURING THE SPECIFIED PERIOD.

INCOME RECOGNITION • • ONCE NPA, THEN INCOME BY WAY OF INTEREST, FEES, COMMISSIONS TO BE RECOGNISED ON RECEIPT BASIS INSTEAD OF ACCRUAL BASIS THE ABOVE RULE APPLICABLE TO GOVERNMENT GUARANTEED – ADVANCES BOTH CENTRAL AND STATE DESPITE CENTRAL GOVERNMENT GUARANTEED ADVANCES BEING EXEMPTED FROM BEING CLASSIFIED AS NPA. INTEREST ON ADVANCES AGAINST TERM DEPOSITS, NSG, IVP, KVP AND LIFE POLICIES MAY BE TAKEN TO INCOME PROVIDED ADEQUATE MARGIN IS AVAILABLE IN THE ACCOUNTS REVERSAL OF INCOME BOOKED IN EARLIER PERIOD OR YEAR INCLUDING FEES OR COMMISSIONS BUT NOT REALISED TILL THE DATE OF FRESH IDENTIFICATION OF NPA.

CONT… • AFTER NPA, INTEREST INCOME ACCOUNTED FOR ON RECEIPT BASIS SHOULD NOT BE OUT OF FRESH OR ADDITIONAL FACILITIES • APPROPRIATION OF RECOVERY IN NPA ACCOUNTS TOWARDS INTEREST, PRINCIPAL OR FEES/COMMISSIONS OR LEGAL CHARGES AS PER THE AGREEMENT BETWEEN BANK AND BORROWER AND IF NO AGREEMENT THEN AS PER RECOVERY POLICY OF BANK. • IN CASE OF MORATORIUM FOR INTEREST FOR PROJECT LOANS FOR INFRASTRUCTURE AND NON-INFRASTRUCTURE, INTEREST INCOME FOR PERIOD BEYOND 2 YEARS AND 1 YEAR RESPECTIVELY FROM THE ORIGINAL DCCO SHOULD NOT BE BOOKED. • INTEREST OVERDUE EITHER FUNDED OR CONVERTED INTO EQUITY RECOGNISED AS INCOME HAS TO BE FULLY PROVIDED FOR.

PROVISIONING NORMS • PRIMARY RESPONSIBILITY IS OF MANAGEMENT AND STATUTORY AUDITORS • PROVISIONS MADE AT HO BUT THE NECESSARY DETAILS COLLECTED FROM THE BRANCH LEVEL • SUBSTANDARD ASSETS: o 15% ON TOTAL OUTSTANDING IRRESPECTIVE OF THE SECURITY VALUE AND ECGC COVER. o ADDITIONAL 10% ON UNSECURED EXPOSURES WHERE THE REALISABLE VALUE OF THE SECURITY NOT MORE THAN 10%, AB-INITIO OF THE OUTSTANDING EXPOSURE (BOTH FUND AND NON FUND) AND ADDITIONAL 5% FOR INFRASTRUCTURE LENDING WITH SAFEGUARDS AS ESCROW ACCOUNTS

CONT… • DOUBTFUL ASSETS: o 100% FOR UNSECURED PORTION o FOR SECURED PORTION, 25% FOR D 1 CATEGORY UPTO ONE YEAR, 40% FOR D 2 CATEGORY FROM ONE TO THREE YEARS AND 100% FOR D 3 CATEGORY OF MORE THAN THREE YEARS o REFER THE TABLE IN THE MASTER CIRCULAR FOR COMPUTATION OF PROVISION WHERE SECURITIES VALUE AND ECGC/CGTSI COVER ARE AVAILABLE.

CONT… • LOSS ASSETS: o SHOULD BE WRITTEN OFF. IF NOT, THEN 100 % PROVISION. • STANDARD ASSETS: o DIRECT ADVANCES TO AGRICULTURAL AND SMALL AND MICRO ENTERPRISES (SMES) SECTORS AT 0. 25 PER CENT. o ADVANCES TO COMMERIAL REAL ESTATE (CRE) SECTOR AT 1. 00 PER CENT. o ADVANCES TO COMMERCIAL REAL ESTATE – RESIDENTIAL HOUSING SECTOR (CRE-RH) AT 0. 75 PER CENT o HOUSING LOANS EXTENDED AT TEASER RATES AND RESTRUCTURED ADVANCES AS INDICATED IN PARA 5. 9. 13 12. 4 RESPECTIVELY. o ALL OTHER LOANS AND ADVANCES NOT INCLUDED IN (A), (B) AND (C) ABOVE AT 0. 40 PER CENT.

CONT… o CERTAIN PROVISIONS ON STANDARD ADVANCES MENTIONED ELSEWHERE IN MASTER CIRCULAR: i. FOR DCCO EXTENDED BEYOND 2 YEARS AND 1 YEAR FROM ORIGINAL DCCO FOR PROJECT LOANS FOR INFRASTRUCTURE & NON-INFRASTRUCTURE RESPECTIVELY, PROVISIONS ARE MADE AT HIGHER RATE FOR WHICH REFER THE TABLES IN PARAGRAPH 4. 2. 15 OF THE MASTER CIRCULAR ii. FOR RESTRUCTURED ACCOUNTS CLASSIFIED AS STANDARD ADVANCES AND RESTRUCTURED ACCOUNTS CLASSIFIED EARLIER AS NPA WHEN UPGRADED TO STANDARD CATEGORY, PROVISIONS ARE MADE AT HIGHER RATES FOR WHICH REFER PARA 12. 4. 1 OF MASTER CIRCULAR iii. INCASE OF DIMINUTION IN FAIR VALUE OF RESTRUCTURED ADVANCES (BOTH STANDARD AND NPA) PROVISION TO BE MADE AS PER THE DETAILS AT PARA 12. 4. 2 OF MASTER CIRCULAR BUT THE PROVISION INCLUDING NORMAL PROVISION FOR NPA ACCOUNTS NOT TO EXCEED 100%.