Thursday, May 19, 2011

PROVISIONING ON NPAS and RESTRUCTURED ADVANCES REVISED


on Thursday, May 19, 2011

RATES OF PROVISIONING FOR NPAS AND RESTRUCTURED ADVANCES REVISED

Enhancement of Rates of Provisioning for Non-Performing Assets and Restructured Advances

CIRCULAR NO. DBOD.NO.BP.BC. 94 /21.04.048/2011-12, DATED 18-5-2011

Please refer to paragraph 110 of the Monetary Policy Statement for the year 2011-12 (extract enclosed) wherein it was proposed to enhance the provisioning requirements on certain categories of non-performing advances and restructured advances. Accordingly, the revised provisioning requirements for the following categories of non-performing advances and restructured advances will be as under: (the current provisioning requirements are laid down in paragraph 5 of the Master Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances - Ref DBOD.No.BP.BC.21/21.04.048/2010-11, dated July 1, 2010).
Sub-Standard Advances :
1. Advances classified as "sub-standard" will attract a provision of 15 per cent as against the existing 10 per cent. The "unsecured exposures" classified as sub-standard assets will attract an additional provision of 10 per cent, i.e., a total of 25 per cent as against the existing 20 per cent. However, "unsecured exposures" in respect of Infrastructure loan accounts classified as sub-standard, in case of which certain safeguards such as escrow accounts are available as indicated in our circular DBOD.No.BP.BC.96/08.12.014/2009-10, dated April 23, 2010, will attract an additional provision of 5 per cent only i.e. a total of 20 per cent as against the existing 15 per cent.
Doubtful Advances :
2. Doubtful Advances will continue to attract 100% provision to the extent the advance is not covered by the realisable value of the security to which the bank has a valid recourse and the realisable value is estimated on a realistic basis. However, in respect of the secured portion, following provisioning requirements will be applicable:
i. The secured portion of advances which have remained in "doubtful" category up to one year will attract a provision of 25 per cent (as against the existing 20 per cent);
ii. The secured portion of advances which have remained in "doubtful" category for more than one year but upto 3 years will attract a provision of 40 per cent (as against the existing 30 per cent); and
iii. The secured portion of advances which have remained in "doubtful" category for more than 3 years will continue to attract a provision of 100%.
Restructured Advances:
3. i. Restructured accounts classified as standard advances will attract a provision of 2 per cent in the first two years from the date of restructuring. In cases of moratorium on payment of interest/principal after restructuring, such advances will attract a provision of 2 per cent for the period covering moratorium and two years thereafter (as against existing provision of 0.25-1.00 per cent, depending upon the category of advances); and
ii. Restructured accounts classified as non-performing advances, when upgraded to standard category will attract a provision of 2 per cent in the first year from the date of upgradation (as against existing provision of 0.25-1.00 per cent, depending upon the category of advances).
4. All other instructions on provisioning will remain unchanged. The revised provisioning norms vis-a-vis the existing norms are also summarized in Annex

Rates of Provisioning for Non-Performing Assets and Restructured Advances

Category of Advances
Existing Rate (%)
Revised Rate (%)
Sub-standard Advances
    l Secured Exposures
    l Unsecured Exposures
    l Unsecured Exposures in respect of Infrastructure loan accounts where certain safeguards such as escrow accounts are available.

10
20
15

15
25
20
Doubtful Advances – Unsecured Portion
100
100
Doubtful Advances – Secured Portion
    l For Doubtful upto 1 year
    l For Doubtful > 1 year and upto 3 years
    l For Doubtful > 3 years

20
30
100

25
40
100
Loss Advances
100
100
Restructured accounts classified as standard advances
    l in the first two years from the date of restructuring ; and
    l in cases of moratorium on payment of interest/principal after restructuring – period covering moratorium and two years thereafter.

0.25 to 1.00 (depending upon the category of advance)

2
Restructured accounts earlier classified as NPA and later upgraded to standard category
    l in the first year from the date of upgradation


0.25 to 1.00 (depending upon the category of advance)


2

Extract from the Monetary Policy Statement 2011-12

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