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__________________RESERVE BANK OF INDIA_________________

www.rbi.org.in

RBI/2009-10/39
DBOD.No.BP.BC. 17 /21.04.048/2009-10 July 1, 2009

All Commercial Banks (excluding RRBs)

Dear Sir

Master Circular - Prudential norms on Income Recognition, Asset Classification and

Provisioning pertaining to Advances

Please refer to the Master Circular No. DBOD.No.BP.BC. 20/21.04.048/2008-09 dated July
1, 2008 consolidating instructions / guidelines issued to banks till June 30, 2008 on matters
relating to prudential norms on income recognition, asset classification and provisioning
pertaining to advances.

2. The Master Circular has now been suitably updated by incorporating instructions
issued up to June 30, 2009 and is attached. It has also been placed on the RBI web-site
(http://www.rbi.org.in). We advise that this revised Master Circular consolidates the
instructions contained in the circulars listed in the Annex 7.

Yours faithfully

(B. Mahapatra)
Chief General Manager

Encls: As above

___________________________________________________________________________________________________________________
_____________________
th
Department of Banking Operations and Development, Central Office, 12 floor, Central Office Building, Mumbai – 400 001.
Tel No: (91-22) 22601000 Fax No. (91-22) 22705691 & (91-22) 22705692 - Email ID:[email protected]
MASTER CIRCULAR - PRUDENTIAL NORMS ON INCOME RECOGNITION, ASSET
CLASSIFICATION AND PROVISIONING PERTAINING TO ADVANCES

TABLE OF CONTENTS

Para No. Particulars Page

No.

PART A

1 GENERAL 1

2 DEFINITIONS 1

2.1 Nonperforming assets 1

2.2 ‘Out of Order' status 2
2.3 ‘Overdue’ 2
3 INCOME RECOGNITION 2

3.1 Income recognition policy 2

3.2 Reversal of income 3
3.3 Appropriation of recovery in NPAs 3
3.4 Interest Application 4
3.5 Computation of NPA levels 4
4 ASSET CLASSIFICATION 4

4.1 Categories of NPAs 4

4.1.1 Substandard Assets 4
4.1.2 Doubtful Assets 5
4.1.3 Loss Assets 5
4.2 Guidelines for classification of assets 5
4.2.3 Availability of security / net worth of borrower/ 5
guarantor
4.2.4 Accounts with temporary deficiencies 6
4.2.5 Upgradation of loan accounts classified as NPAs 6
4.2.6 Accounts regularised near about the balance sheet 7
date
4.2.7 Asset Classification to be borrower wise and not 7
facility-wise
4.2.8 Advances under consortium arrangements 8
4.2.9 Accounts where there is erosion in the value of security 8
4.2.10 Advances to PACS/FSS ceded to Commercial Banks 9
4.2.11 Advances against Term Deposits, NSCs, KVP/IVP, etc 9
4.2.12 Loans with moratorium for payment of interest 9
4.2.13 Agricultural advances 10
4.2.14 Government guaranteed advances 11
4.2.15 Projects under implementation 11
4.2.16 Takeout Finance 15
4.2.17 Post-shipment Supplier's Credit 15
4.2.18 Export Project Finance 16
4.2.19 Advances under rehabilitation approved by BIFR/ TLI 16
5 PROVISIONING NORMS 16

5.1 General 16
5.2 Loss assets 17
5.3 Doubtful assets 17
5.4 Substandard assets 18
5.5 Standard assets 18
5.6 Floating provisions 19
5.7 Provisions for advances at higher than prescribed rates 21
5.8 Provisions on Leased Assets 21
5.9 Guidelines for Provisions under Special Circumstances 22
6 GUIDELINES ON SALE OF FINANCIAL ASSETS TO 27
SECURITISATION COMPANY (SC)/
RECONSTRUCTION COMPANY (RC)

6.1 Scope 27
6.2 Structure 27
6.3 Financial assets which can be sold 28
6.4 Procedure for sale of banks’/ FIs’ financial assets to 28
SC/ RC, including valuation and pricing aspects
6.5 Prudential norms for banks/ FIs for the sale 30
transactions
6.6 Disclosure Requirements 31
6.7 Related Issues 32
7 GUIDELINES ON PURCHASE/SALE OF NON 32
PERFORMING ASSETS

7.1 Scope 32
7.4 Structure 33
7.5 Procedure for purchase/ sale of non performing 33
financial assets, including valuation and pricing aspects
7.6 Prudential norms for banks for the purchase/ sale 35
transactions
7.7 Disclosure Requirements 37
8 WRITING OFF OF NPAs 37

PART B

Prudential guidelines on Restructuring of Advances

9 Background on Restructuring of advances 39

10 Key Concepts 40
11 General Principles and Prudential Norms for 40
Restructured Advances
11.1 Eligibility criteria for restructuring of advances 40
11.2 Asset classification norms 42
11.3 Income recognition norms 43
11.4 Provisioning norms 43
12 Prudential Norms for Conversion of Principal into 45
Debt / Equity
12.1 Asset classification norms 45
12.2 Income recognition norms 45
12.3 Valuation and provisioning norms 45
13 Prudential Norms for Conversion of Unpaid Interest 46
into 'Funded Interest Term Loan' (FITL), Debt or
Equity Instruments
13.1 Asset classification norms 46
13.2 Income recognition norms 46
13.3 Valuation and provisioning norms 47
14 Special Regulatory Treatment for Asset 47
Classification
14.1 Applicability of special regulatory treatment 47
14.2 Elements of special regulatory framework 47
15 Miscellaneous 49
16 Disclosures 50
17 Illustrations 50
18 Objective of Restructuring 50

PART C

Agricultural Debt Waiver and Debt Relief Scheme, 2008 (ADWDRS)- Prudential
Norms on Income Recognition, Asset Classification, Provisioning, and Capital
Adequacy

19 The background 51
20 Prudential Norms for the Borrowal Accounts Covered 51
under the ADWDRS
20.1 Norms for the Accounts subjected to Debt Waiver 51
20.2 Norms for the Accounts subjected to the Debt Relief 52
20.3 Grant of Fresh Loans to the Borrowers covered under 55
the ADWDRS
20.4 Capital Adequacy 55
21 Subsequent Modifications to the Prudential Norms 55
21.1 Interest payment by the GOI 55
21.2 Change in instalment schedule of “other farmers” under 56
the Debt Relief Scheme

ANNEXES

Annex -1 List of relevant direct agricultural advances 57

Annex -2 Organisational Framework for Restructuring of Advances Under 58
Consortium / Multiple Banking / Syndication Arrangements
Annex -3 Key Concepts in Restructuring 70
Annex -4 Particulars of Accounts Restructured 72
Annex -5 Asset Classification of Restructured Accounts under the 73
Guidelines
Annex -6 Special Regulatory Relaxations for Restructuring (Available upto 75
June 30,2009)
Annex - 7 List of circulars consolidated by the Master Circular 79

Master Circular - Prudential Norms on Income Recognition, Asset

Classification and Provisioning pertaining to Advances
 Part A

1. GENERAL

1.1 In line with the international practices and as per the recommendations made by the
Committee on the Financial System (Chairman Shri M. Narasimham), the Reserve Bank of
India has introduced, in a phased manner, prudential norms for income recognition, asset
classification and provisioning for the advances portfolio of the banks so as to move
towards greater consistency and transparency in the published accounts.

1.2 The policy of income recognition should be objective and based on record of
recovery rather than on any subjective considerations. Likewise, the classification of
assets of banks has to be done on the basis of objective criteria which would ensure a
uniform and consistent application of the norms. Also, the provisioning should be made on
the basis of the classification of assets based on the period for which the asset
has remained nonperforming and the availability of security and the realisable value thereof.

1.3 Banks are urged to ensure that while granting loans and advances, realistic
repayment schedules may be fixed on the basis of cash flows with borrowers. This would go
a long way to facilitate prompt repayment by the borrowers and thus improve the record of
recovery in advances.

1.4 With the introduction of prudential norms, the Health Code-based system for
classification of advances has ceased to be a subject of supervisory interest. As such, all
related reporting requirements, etc. under the Health Code system also cease to be a
supervisory requirement. Banks may, however, continue the system at their discretion as a
management information tool.

2. DEFINITIONS

2.1 Non performing Assets

2.1.1 An asset, including a leased asset, becomes non performing when it ceases
to generate income for the bank.

2.1.2 A non performing asset (NPA) is a loan or an advance where;

i. interest and/ or instalment of principal remain overdue for a period of

more than 90 days in respect of a term loan,

ii. the account remains ‘out of order’ as indicated at paragraph 2.2 below, in
respect of an Overdraft/Cash Credit (OD/CC),
 iii. the bill remains overdue for a period of more than 90 days in the case of
bills purchased and discounted,

iv. the instalment of principal or interest thereon remains overdue for two
crop seasons for short duration crops,

v. the instalment of principal or interest thereon remains overdue for one

crop season for long duration crops,

vi. the amount of liquidity facility remains outstanding for more than 90 days,
in respect of a securitisation transaction undertaken in terms of
guidelines on securitisation dated February 1, 2006.

vii. in respect of derivative transactions, the overdue receivables

representing positive mark-to-market value of a derivative contract, if
these remain unpaid for a period of 90 days from the specified due date
for payment.

2.1.3 Banks should, classify an account as NPA only if the interest due and
charged during any quarter is not serviced fully within 90 days from the end of the
quarter.

2.2 ‘Out of Order’ status

An account should be treated as 'out of order' if the outstanding balance remains

continuously in excess of the sanctioned limit/drawing power. In cases where the
outstanding balance in the principal operating account is less than the sanctioned
limit/drawing power, but there are no credits continuously for 90 days as on the date of
Balance Sheet or credits are not enough to cover the interest debited during the same
period, these accounts should be treated as 'out of order'.

2.3 ‘Overdue’

Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due
date fixed by the bank.

3. INCOME RECOGNITION

3.1 Income Recognition Policy

3.1.1 The policy of income recognition has to be objective and based on the record
of recovery. Internationally income from nonperforming assets (NPA) is not
recognised on accrual basis but is booked as income only when it is actually
received. Therefore, the banks should not charge and take to income account
interest on any NPA.
 3.1.2 However, interest on advances against term deposits, NSCs, IVPs,
KVPs and Life policies may be taken to income account on the due date, provided
adequate margin is available in the accounts.

3.1.3 Fees and commissions earned by the banks as a result of renegotiations or

rescheduling of outstanding debts should be recognised on an accrual basis over
the period of time covered by the renegotiated or rescheduled extension of credit.

3.1.4 If Government guaranteed advances become NPA, the interest on such

advances should not be taken to income account unless the interest has been
realised.

3.2 Reversal of income

3.2.1 If any advance, including bills purchased and discounted, becomes NPA
as at the close of any year, the entire interest accrued and credited to income
account in the past periods, should be reversed or provided for if the same is not
realised. This will apply to Government guaranteed accounts also.

3.2.2 In respect of NPAs, fees, commission and similar income that have accrued
should cease to accrue in the current period and should be reversed or provided for
with respect to past periods, if uncollected.

3.2.3 Leased Assets

The finance charge component of finance income [as defined in ‘AS 19 Leases’
issued by the Council of the Institute of Chartered Accountants of India (ICAI)] on
the leased asset which has accrued and was credited to income account before the
asset became nonperforming, and remaining unrealised, should be reversed or
provided for in the current accounting period.

3.3 Appropriation of recovery in NPAs

3.3.1 Interest realised on NPAs may be taken to income account provided the
credits in the accounts towards interest are not out of fresh/ additional credit facilities
sanctioned to the borrower concerned.

3.3.2 In the absence of a clear agreement between the bank and the borrower for
the purpose of appropriation of recoveries in NPAs (i.e. towards principal or interest
due), banks should adopt an accounting principle and exercise the right of
appropriation of recoveries in a uniform and consistent manner.
3.4 Interest Application

There is no objection to the banks using their own discretion in debiting interest to an NPA
account taking the same to Interest Suspense Account or maintaining only a record of such
interest in proforma accounts.
3.5 Computation of NPA levels

Banks should deduct the following items from the Gross Advances and Gross NPAs to
arrive at the Net advances and Net NPAs respectively:

i) Balance in Interest Suspense Account

ii) DICGC/ECGC claims received and held, pending adjustment

iii) Part payment received and kept in suspense account

iv) Total provisions held (excluding amount of technical write off and provision
on standard assets)

For the purpose, the amount of gross advances should exclude the amount of Technical
Write off but would include all outstanding loans and advances; including the advances for
which refinance has been availed but excluding the amount of rediscounted bills. The level
of gross and net NPAs will be arrived at in percentage terms by dividing the amount of
gross and net NPAs by gross and net advances, computed as above, respectively.

4. ASSET CLASSIFICATION

4.1 Categories of NPAs

Banks are required to classify nonperforming assets further into the following three
categories based on the period for which the asset has remained nonperforming and the
realisability of the dues:

i. Substandard Assets

ii. Doubtful Assets

iii. Loss Assets

4.1.1 Substandard Assets

With effect from 31 March 2005, a substandard asset would be one, which has
remained NPA for a period less than or equal to 12 months. In such cases, the
current net worth of the borrower/ guarantor or the current market value of the
security charged is not enough to ensure recovery of the dues to the banks in full. In
 other words, such an asset will have well defined credit weaknesses that jeopardise
the liquidation of the debt and are characterised by the distinct possibility that the
banks will sustain some loss, if deficiencies are not corrected.

4.1.2 Doubtful Assets

With effect from March 31, 2005, an asset would be classified as doubtful if it has
remained in the substandard category for a period of 12 months. A loan classified
as doubtful has all the weaknesses inherent in assets that were classified as sub-
standard, with the added characteristic that the weaknesses make collection or
liquidation in full, – on the basis of currently known facts, conditions and values –
highly questionable and improbable.

4.1.3 Loss Assets

A loss asset is one where loss has been identified by the bank or internal or external
auditors or the RBI inspection but the amount has not been written off wholly. In
other words, such an asset is considered uncollectible and of such little value that its
continuance as a bankable asset is not warranted although there may be some
salvage or recovery value.

4.2 Guidelines for classification of assets

4.2.1 Broadly speaking, classification of assets into above categories should be

done taking into account the degree of well-defined credit weaknesses and the
extent of dependence on collateral security for realisation of dues.

4.2.2 Banks should establish appropriate internal systems to eliminate the

tendency to delay or postpone the identification of NPAs, especially in respect of
high value accounts. The banks may fix a minimum cut off point to decide what
would constitute a high value account depending upon their respective
business levels. The cut off point should be valid for the entire accounting year.
Responsibility and validation levels for ensuring proper asset classification may be
fixed by the banks. The system should ensure that doubts in asset classification due
to any reason are settled through specified internal channels within one month from
the date on which the account would have been classified as NPA as per extant
guidelines.

4.2.3 Availability of security / net worth of borrower/ guarantor

The availability of security or net worth of borrower/ guarantor should not be taken
into account for the purpose of treating an advance as NPA or otherwise, except to
the extent provided in Para 4. 2.9, as income recognition is based on record of
recovery.

4.2.4 Accounts with temporary deficiencies

The classification of an asset as NPA should be based on the record of recovery.

Bank should not classify an advance account as NPA merely due to the existence of
some deficiencies which are temporary in nature such as non-availability of
adequate drawing power based on the latest available stock statement, balance
outstanding exceeding the limit temporarily, non-submission of stock statements
and non-renewal of the limits on the due date, etc. In the matter of classification of
accounts with such deficiencies banks may follow the following guidelines:

i) Banks should ensure that drawings in the working capital

accounts are covered by the adequacy of current assets, since current
assets are first appropriated in times of distress. Drawing power is required
to be arrived at based on the stock statement which is current. However,
considering the difficulties of large borrowers, stock statements relied upon
by the banks for determining drawing power should not be older than three
months. The outstanding in the account based on drawing power calculated
from stock statements older than three months, would be deemed as
irregular.

A working capital borrowal account will become NPA if such irregular

drawings are permitted in the account for a continuous period of 90
days even though the unit may be working or the borrower's financial position
is satisfactory.

ii) Regular and ad hoc credit limits need to be reviewed/ regularised not
later than three months from the due date/date of ad hoc sanction. In case of
constraints such as non-availability of financial statements and other data
from the borrowers, the branch should furnish evidence to show that
renewal/ review of credit limits is already on and would be completed soon.
In any case, delay beyond six months is not considered desirable as a
general discipline. Hence, an account where the regular/ ad hoc credit
limits have not been reviewed/ renewed within 180 days from the due date/
date of ad hoc sanction will be treated as NPA.

4.2.5 Upgradation of loan accounts classified as NPAs

If arrears of interest and principal are paid by the borrower in the case of loan
accounts classified as NPAs, the account should no longer be treated as non-
performing and may be classified as ‘standard’ accounts. With regard to upgradation
of a restructured/ rescheduled account which is classified as NPA contents of
paragraphs 4.2.15 and 4.2.16 will be applicable.

4.2.6 Accounts regularised near about the balance sheet date

The asset classification of borrowal accounts where a solitary or a few credits are
recorded before the balance sheet date should be handled with care and without
scope for subjectivity. Where the account indicates inherent weakness on the basis
of the data available, the account should be deemed as a NPA. In other genuine
cases, the banks must furnish satisfactory evidence to the Statutory
Auditors/Inspecting Officers about the manner of regularisation of the account to
eliminate doubts on their performing status.

4.2.7 Asset Classification to be borrower-wise and not facility-wise

i) It is difficult to envisage a situation when only one facility to a

borrower/one investment in any of the securities issued by the borrower
becomes a problem credit/investment and not others. Therefore, all the
facilities granted by a bank to a borrower and investment in all the
securities issued by the borrower will have to be treated as NPA/NPI and not
the particular facility/investment or part thereof which has become irregular.

ii) If the debits arising out of devolvement of letters of credit or invoked

guarantees are parked in a separate account, the balance outstanding in that
account also should be treated as a part of the borrower’s principal operating
account for the purpose of application of prudential norms on income
recognition, asset classification and provisioning.

iii) The bills discounted under LC favouring a borrower may not be

classified as a Non-performing advance (NPA), when any other facility
granted to the borrower is classified as NPA. However, in case documents
under LC are not accepted on presentation or the payment under the LC is
not made on the due date by the LC issuing bank for any reason and the
borrower does not immediately make good the amount disbursed as a result
of discounting of concerned bills, the outstanding bills discounted will
immediately be classified as NPA with effect from the date when the other
facilities had been classified as NPA.

iv) The overdue receivables representing positive mark-to-market value

of a derivative contract will be treated as a non-performing asset, if these
remain unpaid for 90 days or more. In case the overdues arising from
forward contracts and plain vanilla swaps and options become NPAs, all
other funded facilities granted to the client shall also be classified as non-
performing asset following the principle of borrower-wise classification as per
the existing asset classification norms. Accordingly, any amount,
representing positive mark-to-market value of the foreign exchange
derivative contracts (other than forward contract and plain vanilla swaps and
options) that were entered into during the period April 2007 to June 2008,
which has already crystallised or might crystallise in future and is / becomes
receivable from the client, should be parked in a separate account
maintained in the name of the client / counterparty. This amount, even if
overdue for a period of 90 days or more, will not make other funded facilities
provided to the client, NPA on account of the principle of borrower-wise asset
classification, though such receivable overdue for 90 days or more shall itself
be classified as NPA, as per the extant IRAC norms. The classification of all
other assets of such clients will, however, continue to be governed by the
extant IRAC norms.
 v) If the client concerned is also a borrower of the bank enjoying a Cash
Credit or Overdraft facility from the bank, the receivables mentioned at item
(iv) above may be debited to that account on due date and the impact of its
non-payment would be reflected in the cash credit / overdraft facility account.
The principle of borrower-wise asset classification would be applicable here
also, as per extant norms.
vi) In cases where the contract provides for settlement of the current
mark-to-market value of a derivative contract before its maturity, only the
current credit exposure (not the potential future exposure) will be classified
as a non-performing asset after an overdue period of 90 days.

vii) As the overdue receivables mentioned above would represent

unrealised income already booked by the bank on accrual basis, after 90
days of overdue period, the amount already taken to 'Profit and Loss a/c'
should be reversed and held in a 'Suspense a/c' in the same manner as is
done in the case of overdue advances.

4.2.8 Advances under consortium arrangements

Asset classification of accounts under consortium should be based on the record of

recovery of the individual member banks and other aspects having a bearing on
the recoverability of the advances. Where the remittances by the borrower under
consortium lending arrangements are pooled with one bank and/or where the bank
receiving remittances is not parting with the share of other member banks, the
account will be treated as not serviced in the books of the other member banks and
therefore, be treated as NPA. The banks participating in the consortium should,
therefore, arrange to get their share of recovery transferred from the lead bank or
get an express consent from the lead bank for the transfer of their share of recovery,
to ensure proper asset classification in their respective books.

4.2.9 Accounts where there is erosion in the value of security/frauds committed by

borrowers

In respect of accounts where there are potential threats for recovery on account of
erosion in the value of security or non-availability of security and existence of other
factors such as frauds committed by borrowers it will not be prudent that such
accounts should go through various stages of asset classification. In cases of such
serious credit impairment the asset should be straightaway classified as doubtful or
loss asset as appropriate:

i. Erosion in the value of security can be reckoned as significant when

the realisable value of the security is less than 50 per cent of the value
assessed by the bank or accepted by RBI at the time of last inspection,
as the case may be. Such NPAs may be straightaway classified under
doubtful category and provisioning should be made as applicable to doubtful
assets.
 ii. If the realisable value of the security, as assessed by the bank/
approved valuers/ RBI is less than 10 per cent of the outstanding in the
borrowal accounts, the existence of security should be ignored and the
asset should be straightaway classified as loss asset. It may be either written
off or fully provided for by the bank.

4.2.10 Advances to PACS/FSS ceded to Commercial Banks

In respect of agricultural advances as well as advances for other purposes granted

by banks to PACS/ FSS under the on-lending system, only that particular credit
facility granted to PACS/ FSS which is in default for a period of two crop seasons in
case of short duration crops and one crop season in case of long duration crops, as
the case may be, after it has become due will be classified as NPA and not all the
credit facilities sanctioned to a PACS/ FSS. The other direct loans & advances, if
any, granted by the bank to the member borrower of a PACS/ FSS outside the on-
lending arrangement will become NPA even if one of the credit facilities granted to
the same borrower becomes NPA.

4.2.11 Advances against Term Deposits, NSCs, KVP/IVP, etc

Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs and life
policies need not be treated as NPAs, provided adequate margin is available in the
accounts. Advances against gold ornaments, government securities and all other
securities are not covered by this exemption.

4.2.12 Loans with moratorium for payment of interest

i. In the case of bank finance given for industrial projects or for

agricultural plantations etc. where moratorium is available for payment of
interest, payment of interest becomes 'due' only after the moratorium or
gestation period is over. Therefore, such amounts of interest do not become
overdue and hence do not become NPA, with reference to the date of debit
of interest. They become overdue after due date for payment of interest,
if uncollected.

ii. In the case of housing loan or similar advances granted to staff

members where interest is payable after recovery of principal, interest need
not be considered as overdue from the first quarter onwards. Such
loans/advances should be classified as NPA only when there is a default in
repayment of instalment of principal or payment of interest on the respective
due dates.

4.2.13 Agricultural advances

i. A loan granted for short duration crops will be treated as NPA, if the
instalment of principal or interest thereon remains overdue for two crop
seasons. A loan granted for long duration crops will be treated as NPA, if the
instalment of principal or interest thereon remains overdue for one crop
season. For the purpose of these guidelines, “long duration” crops would be
crops with crop season longer than one year and crops, which are not “long
duration” crops, would be treated as “short duration” crops. The crop season
for each crop, which means the period up to harvesting of the crops raised,
would be as determined by the State Level Bankers’ Committee in each
State. Depending upon the duration of crops raised by an agriculturist, the
above NPA norms would also be made applicable to agricultural term
loans availed of by him.
The above norms should be made applicable to all direct agricultural
advances as listed at items 1.1.1, 1.1.2, 1.1.3, 1.1.4, 1.1.5, 1.1.6 and 1.2.1,
1.2.2 and 1.2.3 of Master Circular on lending to priority sector. RPCD.
No.Plan. BC. 9 /04.09.01/ 2008-2009 dated July 1, 2008. An extract of the
list of these items is furnished in the Annex I. In respect of agricultural loans,
other than those specified in the Annex I and term loans given to non-
agriculturists, identification of NPAs would be done on the same
basis as non-agricultural advances, which, at present, is the 90 days
delinquency norm.

ii. Where natural calamities impair the repaying capacity of agricultural

borrowers, banks may decide on their own as a relief measure conversion of
the short-term production loan into a term loan or re-schedulement of the
repayment period; and the sanctioning of fresh short-term loan, subject to
guidelines contained in RBI circular RPCD. No.PLFS.BC.6/ 05.04.02/ 2004-
05 dated July 1, 2005.

iii. In such cases of conversion or re-schedulement, the term loan

as well as fresh short-term loan may be treated as current dues and need not
be classified as NPA. The asset classification of these loans would thereafter
be governed by the revised terms & conditions and would be treated as NPA
if interest and/or instalment of principal remains overdue for two crop
seasons for short duration crops and for one crop season for long duration
crops. For the purpose of these guidelines, "long duration" crops would be
crops with crop season longer than one year and crops, which are not 'long
duration" would be treated as "short duration" crops.

iv. The debts as on March 31, 2004 of farmers, who have suffered
production and income losses on account of successive natural calamities,
i.e., drought, flood, or other calamities which might have occurred in the
districts for two or more successive years during the past five years may be
rescheduled/ restructured by the banks, provided the State Government
concerned has declared such districts as calamity affected. Accordingly, the
interest outstanding/accrued in the accounts of such borrowers (crop
loans and agriculture term loans) up to March 31, 2004 may be clubbed with
the principal outstanding therein as on March 31, 2004, and the amount
thus arrived at shall be repayable over a period of five years, at current
interest rates, including an initial moratorium of two years. As regards the
crop loans and agricultural term loans which have already been restructured
on account of natural calamities as per the standing guidelines, only the
overdue instalments including interest thereon as on March 31, 2004 may be
taken into account for the proposed restructuring. On restructuring as above,
the farmers concerned will become eligible for fresh loans. The
rescheduled/restructured loans as also the fresh loans to be issued to the
farmers may be treated as current dues and need not be classified as NPA.
 While the fresh loans would be governed by the NPA norms as applicable to
agricultural loans, in case of rescheduled/restructured loans, the NPA
norms would be applicable from the third year onwards, i.e., on expiry of the
initial moratorium period of two years.

v. In case of Kharif crop loans in the districts affected by failure of the

SouthWest monsoon as notified by the State Government, recovery of
any amount either by way of principal or interest during the financial year
2002-03 need not be effected. Further, the principal amount of crop loans in
such cases should be converted into term loans and will be recovered over a
period of minimum 5 years in case of small and marginal farmers and 4
years in case of other farmers. Interest due in the financial year 2002-03 on
crop loans should also be deferred and no interest should be charged on the
deferred interest. In such cases of conversion or re-schedulement of crop
loans into term loans, the term loans may be treated as current dues and
need not be classified as NPA. The asset classification of these loans would
thereafter be governed by the revised terms and conditions and would be
treated as NPA if interest and / or instalment of principal remain overdue for
two crop seasons.

vi. While fixing the repayment schedule in case of rural housing

advances granted to agriculturists under Indira Awas Yojana and Golden
Jubilee Rural Housing Finance Scheme, banks should ensure that the
interest/instalment payable on such advances are linked to crop cycles.

4.2.14 Government guaranteed advances

The credit facilities backed by guarantee of the Central Government though overdue
may be treated as NPA only when the Government repudiates its guarantee when
invoked. This exemption from classification of Government guaranteed advances as
NPA is not for the purpose of recognition of income. The requirement of invocation
of guarantee has been delinked for deciding the asset classification and provisioning
requirements in respect of State Government guaranteed exposures. With effect
from the year ending 31 March 2006 State Government guaranteed advances and
investments in State Government guaranteed securities would attract asset
classification and provisioning norms if interest and/or principal or any other amount
due to the bank remains overdue for more than 90 days.

4.2.15 Projects under implementation

It was observed that there were instances, where despite substantial time overrun in
the projects under implementation, the underlying loan assets remained classified in
the standard category merely because the project continued to be under
implementation. Recognising that unduly long time overrun in a project adversely
affected its viability and the quality of the asset deteriorated, a need was felt to
evolve an objective and definite timeframe for completion of projects so as to ensure
that the loan assets relating to projects under implementation were appropriately
classified and asset quality correctly reflected. In the light of the above background,
it was decided to extend the norms detailed below on income recognition, asset
classification and provisioning to banks with respect to industrial projects under
implementation, which involve time overrun.

i. The projects under implementation are grouped into three categories for the
purpose of determining the date when the project ought to be completed:

Category I: Projects where financial closure had been achieved and formally
documented.

Category II: Projects sanctioned before 1997 with original project cost of
Rs.100 crore or more where financial closure was not formally documented.

Category III: Projects sanctioned before 1997 with original project cost of
less than Rs.100 crore where financial closure was not formally documented.

Asset classification

ii. In case of each of the three categories, the date when the project ought to be
completed and the classification of the underlying loan asset should be
determined in the following manner:

Category I (Projects where financial closure had been achieved and

formally documented): In such cases the date of completion of the project
should be as envisaged at the time of original financial closure. In all such
cases, the asset may be treated as standard asset for a period not
exceeding two years beyond the date of completion of the project,
as originally envisaged at the time of initial financial closure of the project.

In case, however, in respect of a project financed after 1997, the financial

closure had not been formally documented, the norms enumerated for
category III below, would apply.

Category II (Projects sanctioned before 1997 with original project cost of

Rs.100 crore or more where financial closure was not formally documented):
For such projects sanctioned prior to 1997, where the date of financial
closure had not been formally documented, an independent Group
was constituted with experts from the term lending institutions as well
as outside experts in the field to decide on the deemed date of completion of
projects. The Group, based on all material and relevant facts and
circumstances, has decided the deemed date of completion of the project, on
a project-by-project basis. In such cases, the asset may be treated as
standard asset for a period not exceeding two years beyond the deemed
date of completion of the project, as decided by the Group. Banks, which
have extended finance towards such projects, may approach the lead
financial institutions to which a copy of the independent Group’s report
has been furnished for obtaining the particulars relating to the deemed date
of completion of project concerned.

Category III (Projects sanctioned before 1997 with original project cost of
less than Rs.100 crore where financial closure was not
formally documented): In these cases, sanctioned prior to 1997, where the
 financial closure was not formally documented, the date of completion of the
project would be as originally envisaged at the time of sanction. In such
cases, the asset may be treated as standard asset only for a period not
exceeding two years beyond the date of completion of the project as
originally envisaged at the time of sanction.

iii. In all the three foregoing categories, in case of time overruns beyond the
aforesaid period of two years, the asset should be classified as substandard
regardless of the record of recovery and provided for accordingly.

iv. As regards the projects financed by the FIs/ banks after 28th May, 2002, the
date of completion of the project should be clearly spelt out at the time of
financial closure of the project. In such cases, if the date of commencement
of commercial production extends beyond a period of six months after the
date of completion of the project, as originally envisaged at the time of initial
financial closure of the project, the account should be treated as a sub-
standard asset. However, for Infrastructure projects alone, w.e.f. March 31,
2008, if the date of commencement of commercial production extends
beyond a period of two years after the date of completion of the project, as
originally envisaged, the account should be treated as substandard.

v. It is, however, clarified that in terms of aforesaid paragraph, a project can

remain classified as "standard" asset only if both the following conditions are
satisfied :

i. the delay in commencement of commercial production is not

beyond six months (two years in case of Infrastructure projects) from
the date of completion of the project, as originally envisaged at the
time of initial financial closure of the project,

ii. the principal and interest on the loans are regularly serviced
during the six month or two year period, as the case may be.

Income recognition

vi. Banks may recognise income on accrual basis in respect of the above three
categories of projects under implementation, which are classified
as ‘standard’.

vi. Banks should not recognise income on accrual basis in respect of the above
three categories of projects under implementation which are classified as a
‘substandard’ asset. Banks may recognise income in such accounts only on
 realisation on cash basis.

Consequently, banks which have wrongly recognised income in the past should
reverse the interest if it was recognised as income during the current year or
make a provision for an equivalent amount if it was recognised as income in the
previous year(s). As regards the regulatory treatment of ‘funded interest’
recognised as income and ‘conversion into equity, debentures or any other
instrument’ banks should adopt the following:

a) Funded Interest: Income recognition in respect of the NPAs,

regardless of whether these are or are not subjected to restructuring/
rescheduling/ renegotiation of terms of the loan agreement, should be done
strictly on cash basis, only on realisation and not if the amount of interest
overdue has been funded. If, however, the amount of funded interest
is recognised as income, a provision for an equal amount should also be
made simultaneously. In other words, any funding of interest in respect of
NPAs, if recognised as income, should be fully provided for.

b) Conversion into equity, debentures or any other instrument: The

amount outstanding converted into other instruments would
normally comprise principal and the interest components. If the amount of
interest dues is converted into equity or any other instrument, and income
is recognised in consequence, full provision should be made for the amount
of income so recognised to offset the effect of such income recognition. Such
provision would be in addition to the amount of provision that may be
necessary for the depreciation in the value of the equity or other instruments,
as per the investment valuation norms. However, if the conversion of interest
is into equity which is quoted, interest income can be recognised at market
value of equity, as on the date of conversion, not exceeding the amount of
interest converted to equity. Such equity must thereafter be classified in the
“available for sale” category and valued at lower of cost or market value. In
case of conversion of principal and /or interest in respect of NPAs into
debentures, such debentures should be treated as NPA, ab initio, in the
same asset classification as was applicable to loan just before conversion
and provision made as per norms. This norm would also apply to zero
coupon bonds or other instruments which seek to defer the liability of the
issuer. On such debentures, income should be recognised only on realisation
basis. The income in respect of unrealised interest which is converted into
debentures or any other fixed maturity instrument should be recognised
 only on redemption of such instrument. Subject to the above, the
equity shares or other instruments arising from conversion of the principal
amount of loan would also be subject to the usual prudential valuation
norms as applicable to such instruments.

Provisioning

vii. While there will be no change in the extant norms on provisioning for NPAs,
banks which are already holding provisions against some of the accounts,
which may now be classified as ‘standard’, shall continue to hold the
provisions and shall not reverse the same.

4.2.16 Takeout Finance

Takeout finance is the product emerging in the context of the funding of long-term
infrastructure projects. Under this arrangement, the institution/the bank financing
infrastructure projects will have an arrangement with any financial institution for
transferring to the latter the outstanding in respect of such financing in their
books on a predetermined basis. In view of the time-lag involved in taking-over, the
possibility of a default in the meantime cannot be ruled out. The norms of asset
classification will have to be followed by the concerned bank/financial institution in
whose books the account stands as balance sheet item as on the relevant date. If
the lending institution observes that the asset has turned NPA on the basis of the
record of recovery, it should be classified accordingly. The lending institution should
not recognise income on accrual basis and account for the same only when it is paid
by the borrower/ taking over institution (if the arrangement so provides). The lending
institution should also make provisions against any asset turning into NPA pending
its take over by taking over institution. As and when the asset is taken over by the
taking over institution, the corresponding provisions could be reversed. However, the
taking over institution, on taking over such assets, should make provisions treating
the account as NPA from the actual date of it becoming NPA even though the
account was not in its books as on that date.

4.2.17 Post-shipment Supplier's Credit

i. In respect of post-shipment credit extended by the banks covering export of

goods to countries for which the ECGC’s cover is available, EXIM Bank has
introduced a guarantee-cum-refinance programme whereby, in the event of
default, EXIM Bank will pay the guaranteed amount to the bank within a
period of 30 days from the day the bank invokes the guarantee after the
exporter has filed claim with ECGC.
 ii. Accordingly, to the extent payment has been received from the EXIM Bank,
the advance may not be treated as a nonperforming asset for asset
classification and provisioning purposes.

4.2.18 Export Project Finance

i. In respect of export project finance, there could be instances where the

actual importer has paid the dues to the bank abroad but the bank in turn is
unable to remit the amount due to political developments such as war, strife,
UN embargo, etc.

ii. In such cases, where the lending bank is able to establish through
documentary evidence that the importer has cleared the dues in full
by depositing the amount in the bank abroad before it turned into NPA in the
books of the bank, but the importer's country is not allowing the funds to be
remitted due to political or other reasons, the asset classification may be
made after a period of one year from the date the amount was deposited
by the importer in the bank abroad.

4.2.19 Advances under rehabilitation approved by BIFR/ TLI

Banks are not permitted to upgrade the classification of any advance in respect of
which the terms have been renegotiated unless the package of renegotiated terms
has worked satisfactorily for a period of one year. While the existing credit facilities
sanctioned to a unit under rehabilitation packages approved by BIFR/term lending
institutions will continue to be classified as substandard or doubtful as the case may
be, in respect of additional facilities sanctioned under the rehabilitation packages,
the Income Recognition, Asset Classification norms will become applicable after a
period of one year from the date of disbursement.

5 PROVISIONING NORMS

5.1 General

5.1.1 The primary responsibility for making adequate provisions for any diminution
in the value of loan assets, investment or other assets is that of the
bank managements and the statutory auditors. The assessment made by the
inspecting officer of the RBI is furnished to the bank to assist the bank management
and the statutory auditors in taking a decision in regard to making adequate and
necessary provisions in terms of prudential guidelines.

5.1.2 In conformity with the prudential norms, provisions should be made on the
 nonperforming assets on the basis of classification of assets into prescribed
categories as detailed in paragraphs 4 supra. Taking into account the time lag
between an account becoming doubtful of recovery, its recognition as such, the
realisation of the security and the erosion over time in the value of security charged
to the bank, the banks should make provision against substandard assets, doubtful
assets and loss assets as below:

5.2 Loss assets

Loss assets should be written off. If loss assets are permitted to remain in the books for
any reason, 100 percent of the outstanding should be provided for.

5.3 Doubtful assets

i. 100 percent of the extent to which 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.

ii. In regard to the secured portion, provision may be made on the following
basis, at the rates ranging from 20 percent to 100 percent of the secured portion
depending upon the period for which the asset has remained doubtful:

Period for which the advance has Provision requirement

remained in ‘doubtful’ category (%)
Up to one year 20
One to three years 30
More than three years 100

iii. Banks are permitted to phase the additional provisioning consequent upon
the reduction in the transition period from substandard to doubtful asset from 18 to
12 months over a four year period commencing from the year ending March 31,
2005, with a minimum of 20 % each year.

Note: Valuation of Security for provisioning purposes

With a view to bringing down divergence arising out of difference in assessment of

the value of security, in cases of NPAs with balance of Rs. 5 crore and above
stock audit at annual intervals by external agencies appointed as per the
guidelines approved by the Board would be mandatory in order to enhance the
reliability on stock valuation. Collaterals such as immovable properties charged in
favour of the bank should be got valued once in three years by valuers appointed
as per the guidelines approved by the Board of Directors.

5.4 Substandard assets

(i) A general provision of 10 percent on total outstanding should be made without

making any allowance for ECGC guarantee cover and securities available.
(ii) The ‘unsecured exposures’ which are identified as ‘substandard’ would attract
additional provision of 10 per cent, i.e., a total of 20 per cent on the outstanding balance.
The provisioning requirement for unsecured ‘doubtful’ assets is 100 per cent. Unsecured
exposure is defined as an exposure where the realisable value of the security, as assessed
by the bank/approved valuers/Reserve Bank’s inspecting officers, is not more than 10
percent, ab-initio, of the outstanding exposure. ‘Exposure’ shall include all funded and non--
funded exposures (including underwriting and similar commitments). ‘Security’ will mean
tangible security properly discharged to the bank and will not include intangible
securities like guarantees (including State government guarantees), comfort letters etc.

(iii) In order to enhance transparency and ensure correct reflection of the unsecured
advances in Schedule 9 of the banks' balance sheet, it is advised that the following would
be applicable from the financial year 2009-10 onwards :

a) For determining the amount of unsecured advances for reflecting in schedule 9

of the published balance sheet, the rights, licenses, authorisations, etc., charged to
the banks as collateral in respect of projects (including infrastructure projects)
financed by them, should not be reckoned as tangible security. Hence such
advances shall be reckoned as unsecured.

b) Banks should also disclose the total amount of advances for which intangible
securities such as charge over the rights, licenses, authority, etc. has been taken as
also the estimated value of such intangible collateral. The disclosure may be made
under a separate head in "Notes to Accounts". This would differentiate such loans
from other entirely unsecured loans.

5.5 Standard assets

(i) As a countercyclical measure, the provisioning requirements for all types of

standard assets stands amended as below, w.e.f November 15, 2008. Banks should
make general provision for standard assets at the following rates for the funded
outstanding on global loan portfolio basis:

(a) direct advances to agricultural and SME sectors at 0.25 per cent;

(b) all other loans and advances at 0.40 per cent

(ii) The revised norms would be effective prospectively but the provisions held
at present should not be reversed. However, in future, if by applying the revised
provisioning norms, any provisions are required over and above the level of
provisions currently held for the standard category assets, these should be duly
provided for.
 (iii) While the provisions on individual portfolios are required to be calculated at
the rates applicable to them, the excess or shortfall in the provisioning, vis-a-vis the
position as on any previous date, should be determined on an aggregate basis. If
the provisions on an aggregate basis required to be held w.e.f November 15, 2008
are less than the provisions already held, the provisions rendered surplus should not
be reversed to P&L and should continue to be maintained at the existing level. In
case of shortfall determined on aggregate basis, the balance should be provided for
by debit to P&L.

(iv) The provisions on standard assets should not be reckoned for arriving at net
NPAs.

(v) The provisions towards Standard Assets need not be netted from
gross advances but shown separately as 'Contingent Provisions against Standard
Assets' under 'Other Liabilities and Provisions Others' in Schedule 5 of the balance
sheet.

5.6 Prudential norms on creation and utilisation of floating provisions

5.6.1 Principle for creation of floating provisions by banks

The bank's board of directors should lay down approved policy regarding the level to
which the floating provisions can be created. The bank should hold floating
provisions for ‘advances’ and ‘investments’ separately and the guidelines prescribed
will be applicable to floating provisions held for both ‘advances’ & ‘investment’
portfolios.

5.6.2 Principle for utilisation of floating provisions by banks

i The floating provisions should not be used for making specific provisions as per
the extant prudential guidelines in respect of nonperforming assets or for making
regulatory provisions for standard assets. The floating provisions can be used
only for contingencies under extraordinary circumstances for making
specific provisions in impaired accounts after obtaining board’s approval and
with prior permission of RBI. The boards of the banks should lay down an
approved policy as to what circumstances would be considered extraordinary.

ii To facilitate banks' boards to evolve suitable policies in this regard, it is clarified

that the extra-ordinary circumstances refer to losses which do not arise in the
normal course of business and are exceptional and non-recurring in nature.
These extra-ordinary circumstances could broadly fall under three categories viz.
General, Market and Credit. Under general category, there can be situations
 where bank is put unexpectedly to loss due to events such as civil unrest or
collapse of currency in a country. Natural calamities and pandemics may also be
included in the general category. Market category would include events such as
a general melt down in the markets, which affects the entire financial system.
Among the credit category, only exceptional credit losses would be considered
as an extra-ordinary circumstance.

iii In terms of the Agricultural Debt Waiver and Debt Relief Scheme, 2008, lending
institutions shall neither claim from the Central Government, nor recover from the
farmer, interest in excess of the principal amount, unapplied interest, penal
interest, legal charges, inspection charges and miscellaneous charges, etc. All
such interest / charges will be borne by the lending institutions. In view of the
extraordinary circumstances in which the banks are required to bear such
interest / charges, banks are allowed, as a one time measure, to utilise, at their
discretion, the Floating Provisions held for 'advances' portfolio, only to the extent
of meeting the interest / charges referred to above.

5.6.3 Accounting

Floating provisions cannot be reversed by credit to the profit and loss account. They
can only be utilised for making specific provisions in extraordinary circumstances as
mentioned above. Until such utilisation, these provisions, till the year 2008-09, could
have either been netted off from gross NPAs to arrive at disclosure of net NPAs, or
treated as part of Tier II capital within the overall ceiling of 1.25 % of total risk
weighted assets.

However, from the year 2009-10 onwards, Floating Provisions cannot be netted from
gross NPAs to arrive at net NPAs, but can only be reckoned as part of Tier II capital
subject to the overall ceiling of 1.25% of total Risk Weighted Assets.

5.6.4 Disclosures

Banks should make comprehensive disclosures on floating provisions in the “notes

on accounts” to the balance sheet on (a) opening balance in the floating provisions
account, (b) the quantum of floating provisions made in the accounting year, (c)
purpose and amount of draw down made during the accounting year, and (d) closing
balance in the floating provisions account.

5.7 Additional Provisions for NPAs at higher than prescribed rates

The regulatory norms for provisioning represent the minimum requirement. A

 bank may voluntarily make specific provisions for advances at rates which are
higher than the rates prescribed under existing regulations, to provide for estimated
actual loss in collectible amount, provided such higher rates are approved by the
Board of Directors and consistently adopted from year to year. Such additional
provisions are not to be considered as floating provisions. The additional provisions
for NPAs, like the minimum regulatory provision on NPAs, may be netted off from
gross NPAs to arrive at the net NPAs

5.8 Provisions on Leased Assets

i) Substandard assets

a) 10 percent of the sum of the net investment in the lease and the
unrealised portion of finance income net of finance charge component. The
terms ‘net investment in the lease’, ‘finance income’ and ‘finance charge’ are
as defined in ‘AS 19 Leases’ issued by the ICAI.

b) Unsecured lease exposures, as defined in paragraph 5.4 above,

which are identified as ‘substandard’ would attract additional provision of 10
per cent, i.e., a total of 20 per cent.

ii) Doubtful assets

100 percent of the extent to which, the finance is not secured by the realisable value
of the leased asset. Realisable value is to be estimated on a realistic basis. In
addition to the above provision, provision at the following rates should be made on
the sum of the net investment in the lease and the unrealised portion of finance
income net of finance charge component of the secured portion, depending upon the
period for which asset has been doubtful:

Period for which the advance has Provision

remained in ‘doubtful’ category requirement (%)
Up to one year 20
One to three years 30
More than three years 100

iii) Loss assets

The entire asset should be written off. If for any reason, an asset is allowed to
remain in books, 100 percent of the sum of the net investment in the lease and the
unrealised portion of finance income net of finance charge component should be
provided for.
5.9 Guidelines for Provisions under Special Circumstances

5.9.1 Advances granted under rehabilitation packages approved by BIFR/term

lending institutions
(i) In respect of advances under rehabilitation package approved by
BIFR/term lending institutions, the provision should continue to be made in
respect of dues to the bank on the existing credit facilities as per their
classification as substandard or doubtful asset.

(ii) As regards the additional facilities sanctioned as per package

finalised by BIFR and/or term lending institutions, provision on additional
facilities sanctioned need not be made for a period of one year from the date
of disbursement.

(iii) In respect of additional credit facilities granted to SSI units which are
identified as sick [as defined in Section IV (Para 2.8) of RPCD circular
RPCD.PLNFS.BC. No 83 /06.02.31/20042005 dated 1 March 2005] and
where rehabilitation packages/nursing programmes have been drawn by the
banks themselves or under consortium arrangements, no provision need be
made for a period of one year.

5.9.2 Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs,
gold ornaments, government & other securities and life insurance policies would
attract provisioning requirements as applicable to their asset classification status.

5.9.3 Treatment of interest suspense account

Amounts held in Interest Suspense Account should not be reckoned as part of

provisions. Amounts lying in the Interest Suspense Account should be deducted
from the relative advances and thereafter, provisioning as per the norms, should be
made on the balances after such deduction.

5.9.4 Advances covered by ECGC guarantee

In the case of advances classified as doubtful and guaranteed by ECGC, provision

should be made only for the balance in excess of the amount guaranteed by the
Corporation. Further, while arriving at the provision required to be made for doubtful
assets, realisable value of the securities should first be deducted from the
outstanding balance in respect of the amount guaranteed by the Corporation and
then provision made as illustrated hereunder:
 Example

Outstanding Balance Rs. 4 lakhs

ECGC Cover 50 percent
Period for which the advance has More than 3 years remained doubtful
remained doubtful (as on March 31, 2004)
Value of security held
(excludes worth of Rs.) Rs. 1.50 lakhs

Provision required to be made

Outstanding balance Rs. 4.00 lakhs

Less: Value of security held Rs. 1.50 lakhs
Unrealised balance Rs. 2.50 lakhs
Less: ECGC Cover
Rs. 1.25 lakhs
(50% of unrealisable balance)
Net unsecured balance Rs. 1.25 lakhs
Provision for unsecured portion of Rs. 1.25 lakhs (@ 100 percent of
advance unsecured portion)
Provision for secured portion of advance Rs.0.90 lakhs (@ 60 per cent of the
(as on March 31, 2005) secured portion)
Rs.2.15 lakhs (as on March 31, 2005)
Total provision to be made

5.9.5 Advance covered by CGTSI guarantee

In case the advance covered by CGTSI guarantee becomes nonperforming, no

provision need be made towards the guaranteed portion. The amount outstanding in
excess of the guaranteed portion should be provided for as per the extant guidelines
on provisioning for nonperforming advances. Two illustrative examples are given
below:
 Example I

Asset classification status: Doubtful – More than 3 years (as on March 31, 2004)
75% of the amount outstanding or 75% of the unsecured
CGTSI Cover
amount or Rs.18.75 lakh, whichever is the least
Realisable value of Security Rs.1.50 lakh
Balance outstanding Rs.10.00 lakh

Less Realisable value of security Rs. 1.50 lakh

Unsecured amount Rs. 8.50 lakh

Less CGTSI cover (75%) Rs. 6.38 lakh
Net unsecured and uncovered Rs. 2.12 lakh
portion:
Provision Required (as
on March 31, 2005)

Secured portion Rs.1.50 lakh

Rs. 0.90 lakh (@ 60%)
Unsecured & uncovered portion Rs.2.12 lakh
Rs. 2.12 lakh (100%)
Total provision required
Rs. 3.02 lakh

Example II

Asset classification status Doubtful – More than 3 years (as on March 31,
2005)
75% of the amount outstanding or 75% of the
CGTSI Cover unsecured amount or Rs.18.75 lakh, whichever is the
least
Realisable value of Security Rs.10.00 lakh
Balance outstanding Rs.40.00 lakh
Less Realisable value of Rs. 10.00 lakh
security
Unsecured amount Rs. 30.00 lakh
Less CGTSI cover (75%) Rs. 18.75 lakh
Net unsecured and Rs. 11.25 lakh
uncovered portion:
Provision Required
(as on March 31, 2005)
Secured portion Rs.10.00 lakh Rs. 10.00 lakh (@ 100%)
Unsecured & uncovered
Rs.11.25 lakh Rs.11.25 lakh (100%)
portion
Total provision required
Rs. 21.25 lakh
5.9.6 Takeout finance

The lending institution should make provisions against a 'takeout finance' turning
into NPA pending its takeover by the taking-over institution. As and when the asset
is taken-over by the taking-over institution, the corresponding provisions could be
reversed.

5.9.7 Reserve for Exchange Rate Fluctuations Account (RERFA)

When exchange rate movements of Indian rupee turn adverse, the outstanding
amount of foreign currency denominated loans (where actual disbursement was
made in Indian Rupee) which becomes overdue, goes up correspondingly, with its
attendant implications of provisioning requirements. Such assets should not
normally be revalued. In case such assets need to be revalued as per requirement
of accounting practices or for any other requirement, the following procedure may be
adopted:

¾ The loss on revaluation of assets has to be booked in the bank's

Profit & Loss Account.

¾ Besides the provisioning requirement as per Asset Classification,

banks should treat the full amount of the Revaluation Gain relating to
the corresponding assets, if any, on account of Foreign Exchange
Fluctuation as provision against the particular assets.

5.9.8 Provisioning for country risk

Banks shall make provisions, with effect from the year ending 31 March 2003, on the
net funded country exposures on a graded scale ranging from 0.25 to 100 percent
according to the risk categories mentioned below. To begin with, banks shall make
provisions as per the following schedule:

Provisioning
ECGC Requirement
Risk category
Classification (per cent)

Insignificant A1 0.25
Low A2 0.25
Moderate B1 5
High B2 20
Very high C1 25
Restricted C2 100
Offcredit D 100
Banks are required to make provision for country risk in respect of a country where
its net funded exposure is one per cent or more of its total assets.

The provision for country risk shall be in addition to the provisions required to be
held according to the asset classification status of the asset. In the case of
‘loss assets’ and ‘doubtful assets’, provision held, including provision held for
country risk, may not exceed 100% of the outstanding.

Banks may not make any provision for ‘home country’ exposures i.e. exposure to
India. The exposures of foreign branches of Indian banks to the host country should
be included. Foreign banks shall compute the country exposures of their Indian
branches and shall hold appropriate provisions in their Indian books. However, their
exposures to India will be excluded.

Banks may make a lower level of provisioning (say 25% of the requirement) in
respect of short-term exposures (i.e. exposures with contractual maturity of less than
180 days).

5.9.9 Excess Provisions on sale of Standard Asset / NPAs

(a) If the sale is in respect of Standard Asset and the sale consideration is
higher than the book value, the excess provisions may be credited to Profit
and Loss Account.

(b) Excess provisions which arise on sale of NPAs can be admitted as Tier
II capital subject to the overall ceiling of 1.25% of total Risk Weighted Assets.
Accordingly, these excess provisions that arise on sale of NPAs would be
eligible for Tier II status in terms of paragraph 4.3.2 of Master Circular
DBOD.No.BP.BC.11/21.06.001/2008-09 dated July 1, 2008 on Prudential
guidelines on Capital Adequacy and Market Discipline - Implementation of
New Capital Adequacy Framework ( NCAF) and paragraph 2.1.1.2.C of
Master Circular DBOD.No.BP.BC.2/21.01.002/2008-09 dated July 1, 2008 on
Prudential Norms on Capital adequacy - Basel I Framework.

5.9.10 Provisions for Diminution of Fair Value

Provisions for diminution of fair value of restructured advances, both in respect of

Standard Assets as well as NPAs, made on account of reduction in rate of interest
and / or reschedulement of principal amount are permitted to be netted from the
relative asset.
 5.9.11 Provisioning norms for Liquidity facility provided for Securitisation
transactions

The amount of liquidity facility drawn and outstanding for more than 90 days, in
respect of securitisation transactions undertaken in terms of our guidelines on
securitisation dated February 1, 2006, should be fully provided for.

5.9.12 Provisioning requirements for derivative exposures

Credit exposures computed as per the current marked to market value of the
contract, arising on account of the interest rate & foreign exchange derivative
transactions, and gold, shall also attract provisioning requirement as applicable to
the loan assets in the 'standard' category, of the concerned counterparties. All
conditions applicable for treatment of the provisions for standard assets would also
apply to the aforesaid provisions for derivative and gold exposures.

6. Guidelines on sale of financial assets to Securitisation Company (SC)/

Reconstruction Company (RC) (created under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002) and related issues

6.1 Scope

These guidelines would be applicable to sale of financial assets enumerated in paragraph

6.3 below, by banks/ FIs, for asset reconstruction/ securitisation under the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

6.2 Structure

The guidelines to be followed by banks/ FIs while selling their financial assets to SC/RC
under the Act ibid and investing in bonds/ debentures/ security receipts offered by the
SC/RC are given below. The prudential guidelines have been grouped under the following
headings:

i) Financial assets which can be sold.

ii) Procedure for sale of banks’/ FIs’ financial assets to SC/ RC,
including valuation and pricing aspects.

iii) Prudential norms, in the following areas, for banks/ FIs for sale of
their financial assets to SC/ RC and for investing in bonds/
 debentures/ security receipts and any other securities offered by the
SC/RC as compensation consequent upon sale of financial assets:

a) Provisioning / Valuation norms

b) Capital adequacy norms

c) Exposure norms

iv) Disclosure requirements

6.3 Financial assets which can be sold

A financial asset may be sold to the SC/RC by any bank/ FI where the asset is:

i) A NPA, including a non-performing bond/ debenture, and

ii) A Standard Asset where:

(a) the asset is under consortium/ multiple banking arrangements,

(b) at least 75% by value of the asset is classified as non-

performing asset in the books of other banks/FIs, and

(c) at least 75% (by value) of the banks / FIs who are under the
consortium / multiple banking arrangements agree to the sale of the
asset to SC/RC.

6.4. Procedure for sale of banks’/ FIs’ financial assets to

SC/ RC, including valuation and pricing aspects

(a) The Securitisation and Reconstruction of Financial Assets and Enforcement

of Security Interest Act, 2002 (SARFAESI Act) allows acquisition of financial assets
by SC/RC from any bank/ FI on such terms and conditions as may be agreed upon
between them. This provides for sale of the financial assets on ‘without recourse’
basis, i.e., with the entire credit risk associated with the financial assets being
transferred to SC/ RC, as well as on ‘with recourse’ basis, i.e., subject to unrealized
part of the asset reverting to the seller bank/ FI. Banks/ FIs are, however, directed to
ensure that the effect of the sale of the financial assets should be such that the
asset is taken off the books of the bank/ FI and after the sale there should not be
any known liability devolving on the banks/ FIs.

(b) Banks/ FIs, which propose to sell to SC/RC their financial assets should
ensure that the sale is conducted in a prudent manner in accordance with a policy
approved by the Board. The Board shall lay down policies and guidelines covering,
inter alia,
 i. Financial assets to be sold;

ii. Norms and procedure for sale of such financial assets;

iii. Valuation procedure to be followed to ensure that the realisable value of

financial assets is reasonably estimated;

iv. Delegation of powers of various functionaries for taking decision on the

sale of the financial assets; etc.

(c) Banks/ FIs should ensure that subsequent to sale of the financial assets to
SC/RC, they do not assume any operational, legal or any other type of risks relating
to the financial assets sold.

(d) (i) Each bank / FI will make its own assessment of the value offered by
the SC / RC for the financial asset and decide whether to accept or
reject the offer.

(ii) In the case of consortium / multiple banking arrangements, if 75% (by

value) of the banks / FIs decide to accept the offer, the remaining
banks / FIs will be obligated to accept the offer.

(iii) Under no circumstances can a transfer to the SC/ RC be made at a

contingent price whereby in the event of shortfall in the realization by
the SC/RC, the banks/ FIs would have to bear a part of the shortfall.

(e) Banks/ FIs may receive cash or bonds or debentures as sale consideration
for the financial assets sold to SC/RC.

(f) Bonds/ debentures received by banks/ FIs as sale consideration towards

sale of financial assets to SC/RC will be classified as investments in the books of
banks/ FIs.

(g) Banks may also invest in security receipts, Pass-through certificates (PTC),
or other bonds/ debentures issued by SC/RC. These securities will also be classified
as investments in the books of banks/ FIs.

(h) In cases of specific financial assets, where it is considered necessary, banks/

FIs may enter into agreement with SC/RC to share, in an agreed proportion, any
surplus realised by SC/RC on the eventual realisation of the concerned asset. In
such cases the terms of sale should provide for a report from the SC/RC to the
bank/ FI on the value realised from the asset. No credit for the expected profit will be
taken by banks/ FIs until the profit materializes on actual sale.
6.5. Prudential norms for banks/ FIs for the sale transactions

(A) Provisioning/ valuation norms

(a) (i) When a bank / FI sells its financial assets to SC/ RC, on transfer the
same will be removed from its books.

(ii) If the sale to SC/ RC is at a price below the net book value (NBV)
(i.e., book value less provisions held), the shortfall should be debited
to the profit and loss account of that year.

(iii) If the sale is for a value higher than the NBV, the excess provision
will not be reversed but will be utilized to meet the shortfall/ loss on
account of sale of other financial assets to SC/RC.

(iv) When banks/ FIs invest in the security receipts/ pass-through

certificates issued by SC/RC in respect of the financial assets sold
by them to the SC/RC, the sale shall be recognised in books of the
banks / FIs at the lower of:

¾ the redemption value of the security receipts/ pass-through

certificates, and

¾ the NBV of the financial asset.

The above investment should be carried in the books of the bank / FI

at the price as determined above until its sale or realization, and on
such sale or realization, the loss or gain must be dealt with in the
same manner as at (ii) and (iii) above.

(b) The securities (bonds and debentures) offered by SC / RC should satisfy the
following conditions:

(i) The securities must not have a term in excess of six years.

(ii) The securities must carry a rate of interest which is not lower than
1.5% above the Bank Rate in force at the time of issue.

(iii) The securities must be secured by an appropriate charge on the

assets transferred.

(iv) The securities must provide for part or full prepayment in the event
the SC / RC sells the asset securing the security before the maturity
date of the security.

(v). The commitment of the SC / RC to redeem the securities must be

unconditional and not linked to the realization of the assets.

(vi) Whenever the security is transferred to any other party, notice of

transfer should be issued to the SC/ RC.

(c) Investment in debentures/ bonds/ security receipts/ Pass-through

certificates issued by SC/ RC
 All instruments received by banks/FIs from SC/RC as sale consideration for financial
assets sold to them and also other instruments issued by SC/ RC in which banks/
FIs invest will be in the nature of non SLR securities. Accordingly, the valuation,
classification and other norms applicable to investment in non-SLR instruments
prescribed by RBI from time to time would be applicable to bank’s/ FI’s investment in
debentures/ bonds/ security receipts/PTCs issued by SC/ RC. However, if any of the
above instruments issued by SC/RC is limited to the actual realisation of the
financial assets assigned to the instruments in the concerned scheme the bank/ FI
shall reckon the Net Asset Value (NAV), obtained from SC/RC from time to time, for
valuation of such investments.

(B) Capital Adequacy

For the purpose of capital adequacy, banks/ FIs should assign risk weights as under
to the investments in debentures/ bonds/ security receipts/ PTCs issued by SC/ RC
and held by banks/ FIs as investment:

i) Risk weight for credit risk: 100%.

ii) Risk weight for market risk: 2.5 %

Applicable risk weight = (i) + (ii)

(C) Exposure Norms

Banks’/ FIs’ investments in debentures/ bonds/ security receipts/PTCs issued by a

SC/RC will constitute exposure on the SC/RC. As only a few SC/RC are being set
up now, banks’/ FIs’ exposure on SC/RC through their investments in debentures/
bonds/security receipts/PTCs issued by the SC/ RC may go beyond their prudential
exposure ceiling. In view of the extra ordinary nature of event, banks/ FIs will be
allowed, in the initial years, to exceed prudential exposure ceiling on a case-to-case
basis.
6.6. Disclosure Requirements
Banks/ FIs, which sell their financial assets to an SC/ RC, shall be required to make the
following disclosures in the Notes on Accounts to their Balance sheets:

Details of financial assets sold during the year to SC/RC for Asset Reconstruction

a. No. of accounts

b. Aggregate value (net of provisions) of accounts sold to SC / RC

c. Aggregate consideration
 d. Additional consideration realized in respect of accounts transferred in
earlier years

e. Aggregate gain / loss over net book value.

6.7. Related Issues

(a) SC/ RC will also take over financial assets which cannot be revived and
which, therefore, will have to be disposed of on a realisation basis. Normally
the SC/ RC will not take over these assets but act as an agent for recovery
for which it will charge a fee.

(b) Where the assets fall in the above category, the assets will not be removed
from the books of the bank/ FI but realisations as and when received will be
credited to the asset account. Provisioning for the asset will continue to be
made by the bank / FI in the normal course.

7. Guidelines on purchase/ sale of Non - Performing Financial Assets

In order to increase the options available to banks for resolving their non performing
assets and to develop a healthy secondary market for nonperforming assets, where
securitisation companies and reconstruction companies are not involved, guidelines have
been issued to banks on purchase / sale of NonPerforming Assets. Since the sale/purchase
of nonperforming financial assets under this option would be conducted within the financial
system the whole process of resolving the non performing assets and matters related
thereto has to be initiated with due diligence and care warranting the existence of a set of
clear guidelines which shall be complied with by all entities so that the process of resolving
nonperforming assets by sale and purchase of NPAs proceeds on smooth and sound lines.
Accordingly guidelines on sale/purchase of nonperforming assets have been formulated
and furnished below. The guidelines may be placed before the bank's /FI's /NBFC's Board
and appropriate steps may be taken for their implementation.

Scope
7.1 These guidelines would be applicable to banks, FIs and NBFCs purchasing/ selling
non performing financial assets, from/ to other banks/FIs/NBFCs (excluding securitisation
companies/ reconstruction companies).
7.2 A financial asset, including assets under multiple/consortium banking arrangements,
would be eligible for purchase/sale in terms of these guidelines if it is a nonperforming
asset/non performing investment in the books of the selling bank.

7.3 The reference to ‘bank’ in the guidelines on purchase/sale of nonperforming financial

assets would include financial institutions and NBFCs.
Structure

7.4 The guidelines to be followed by banks purchasing/ selling nonperforming financial

assets from / to other banks are given below. The guidelines have been grouped under the
following headings:

i) Procedure for purchase/ sale of non performing financial assets by banks,

including valuation and pricing aspects.
ii) Prudential norms, in the following areas, for banks for purchase/ sale of
non performing financial assets:

a) Asset classification norms

b) Provisioning norms
c) Accounting of recoveries
d) Capital adequacy norms
e) Exposure norms

iii) Disclosure requirements

7.5 Procedure for purchase/ sale of non performing financial assets, including
valuation and pricing aspects

i) A bank which is purchasing/ selling nonperforming financial assets should

ensure that the purchase/ sale is conducted in accordance with a policy approved
by the Board. The Board shall lay down policies and guidelines covering, inter alia,

a) Non performing financial assets that may be purchased/ sold;

b) Norms and procedure for purchase/ sale of such financial assets;

c) Valuation procedure to be followed to ensure that the economic value

of financial assets is reasonably estimated based on the estimated
cash flows arising out of repayments and recovery prospects;

d) Delegation of powers of various functionaries for taking decision on

the purchase/ sale of the financial assets; etc.

e) Accounting policy

ii) While laying down the policy, the Board shall satisfy itself that the bank has
adequate skills to purchase non performing financial assets and deal with them in an
efficient manner which will result in value addition to the bank. The Board should
also ensure that appropriate systems and procedures are in place to effectively
address the risks that a purchasing bank would assume while engaging in this
activity.
iii) Banks should, while selling NPAs, work out the net present value of the
estimated cash flows associated with the realisable value of the available securities
net of the cost of realisation. The sale price should generally not be lower than the
net present value arrived at in the manner described above. (Same principle should
be used in compromise settlements. As the payment of the compromise amount
may be in instalments, the net present value of the settlement amount should be
calculated and this amount should generally not be less than the net present value
of the realisable value of securities.)

iv) The estimated cash flows are normally expected to be realised within a
period of three years and at least 10% of the estimated cash flows should be
realized in the first year and at least 5% in each half year thereafter, subject to full
recovery within three years.

v) A bank may purchase/sell nonperforming financial assets from/to other

banks only on ‘without recourse’ basis, i.e., the entire credit risk associated with the
nonperforming financial assets should be transferred to the purchasing bank. Selling
bank shall ensure that the effect of the sale of the financial assets should be such
that the asset is taken off the books of the bank and after the sale there should not
be any known liability devolving on the selling bank.

vi) Banks should ensure that subsequent to sale of the non performing financial
assets to other banks, they do not have any involvement with reference to assets
sold and do not assume operational, legal or any other type of risks relating to the
financial assets sold. Consequently, the specific financial asset should not enjoy the
support of credit enhancements / liquidity facilities in any form or manner.

vii) Each bank will make its own assessment of the value offered by the
purchasing bank for the financial asset and decide whether to accept or reject the
offer.

viii) Under no circumstances can a sale to other banks be made at a contingent

price whereby in the event of shortfall in the realization by the purchasing banks, the
selling banks would have to bear a part of the shortfall.

ix) A nonperforming asset in the books of a bank shall be eligible for sale to
other banks only if it has remained a nonperforming asset for at least two years in
the books of the selling bank.

x) Banks shall sell nonperforming financial assets to other banks only on cash
 basis. The entire sale consideration should be received upfront and the asset can be
taken out of the books of the selling bank only on receipt of the entire sale
consideration.

xi) A nonperforming financial asset should be held by the purchasing bank in its
books at least for a period of 15 months before it is sold to other banks. Banks
should not sell such assets back to the bank, which had sold the NPFA.

(xii) Banks are also permitted to sell/buy homogeneous pool within retail non-
performing financial assets, on a portfolio basis provided each of the nonperforming
financial assets of the pool has remained as nonperforming financial asset for at
least 2 years in the books of the selling bank. The pool of assets would be treated
as a single asset in the books of the purchasing bank.

xiii) The selling bank shall pursue the staff accountability aspects as per the
existing instructions in respect of the nonperforming assets sold to other banks.

7.6. Prudential norms for banks for the purchase/ sale transactions

(A) Asset classification norms

(i) The nonperforming financial asset purchased, may be classified

as ‘standard’ in the books of the purchasing bank for a period of 90 days from the
date of purchase. Thereafter, the asset classification status of the financial asset
purchased, shall be determined by the record of recovery in the books of the
purchasing bank with reference to cash flows estimated while purchasing the asset
which should be in compliance with requirements in Para 7.5 (iv).

(ii) The asset classification status of an existing exposure (other than purchased
financial asset) to the same obligor in the books of the purchasing bank will continue
to be governed by the record of recovery of that exposure and hence may be
different.

(iii) Where the purchase/sale does not satisfy any of the prudential
requirements prescribed in these guidelines the asset classification status of the
financial asset in the books of the purchasing bank at the time of purchase shall be
the same as in the books of the selling bank. Thereafter, the asset classification
status will continue to be determined with reference to the date of NPA in the selling
bank.

(iv) Any restructure/reschedule/rephrase of the repayment schedule or the

estimated cash flow of the nonperforming financial asset by the purchasing bank
shall render the account as a nonperforming asset.

(B) Provisioning norms

Books of selling bank

i) When a bank sells its nonperforming financial assets to other banks, the
same will be removed from its books on transfer.

ii) If the sale is at a price below the net book value (NBV) (i.e., book value less
provisions held), the shortfall should be debited to the profit and loss account of that
year.

iii) If the sale is for a value higher than the NBV, the excess provision shall not
be reversed but will be utilised to meet the shortfall/ loss on account of sale of other
nonperforming financial assets.

Books of purchasing bank

The asset shall attract provisioning requirement appropriate to its asset classification
status in the books of the purchasing bank.

(C) Accounting of recoveries

Any recovery in respect of a nonperforming asset purchased from other banks

should first be adjusted against its acquisition cost. Recoveries in excess of the
acquisition cost can be recognised as profit.

(D) Capital Adequacy

For the purpose of capital adequacy, banks should assign 100% risk weights to the
nonperforming financial assets purchased from other banks. In case the non-
performing asset purchased is an investment, then it would attract capital charge for
market risks also. For NBFCs the relevant instructions on capital adequacy would be
applicable.

(E) Exposure Norms

The purchasing bank will reckon exposure on the obligor of the specific financial
asset. Hence these banks should ensure compliance with the prudential credit
exposure ceilings (both single and group) after reckoning the exposures to the
obligors arising on account of the purchase. For NBFCs the relevant instructions on
exposure norms would be applicable.
7.7. Disclosure Requirements

Banks which purchase nonperforming financial assets from other banks shall be required to
make the following disclosures in the Notes on Accounts to their Balance sheets:

A. Details of nonperforming financial assets purchased:

(Amounts in Rupees crore)

1. (a) No. of accounts purchased during the year
(b) Aggregate outstanding

2. (a) Of these, number of accounts restructured during the year

(b) Aggregate outstanding

B. Details of nonperforming financial assets sold:

(Amounts in Rupees crore)
1. No. of accounts sold
2. Aggregate outstanding
3. Aggregate consideration received

C. The purchasing bank shall furnish all relevant reports to RBI, CIBIL etc. in
respect of the nonperforming financial assets purchased by it.

8. Writing off of NPAs

8.1 In terms of Section 43(D) of the Income Tax Act 1961, income by way of interest in
relation to such categories of bad and doubtful debts as may be prescribed having regard to
the guidelines issued by the RBI in relation to such debts, shall be chargeable to tax in the
previous year in which it is credited to the bank’s profit and loss account or received,
whichever is earlier.

8.2 This stipulation is not applicable to provisioning required to be made as indicated

above. In other words, amounts set aside for making provision for NPAs as above are not
eligible for tax deductions.

8.3 Therefore, the banks should either make full provision as per the guidelines or write-
off such advances and claim such tax benefits as are applicable, by evolving appropriate
methodology in consultation with their auditors/tax consultants. Recoveries made in such
accounts should be offered for tax purposes as per the rules.
8.4 Write-off at Head Office Level

Banks may write-off advances at Head Office level, even though the relative advances are
still outstanding in the branch books. However, it is necessary that provision is made as per
the classification accorded to the respective accounts. In other words, if an advance is a
loss asset, 100 percent provision will have to be made therefor.
 PART B

Prudential Guidelines on Restructuring of Advances by Banks

9. Background

9.1 The guidelines issued by the Reserve Bank of India on restructuring of

advances (other than those restructured under a separate set of guidelines issued by the
Rural Planning and Credit Department (RPCD) of the RBI on restructuring of advances on
account of natural calamities) are divided into the following four categories :

(i) Guidelines on restructuring of advances extended to industrial units.

(ii) Guidelines on restructuring of advances extended to industrial units under the

Corporate Debt Restructuring (CDR) Mechanism

(iii) Guidelines on restructuring of advances extended to Small and Medium

Enterprises (SME)

(iv) Guidelines on restructuring of all other advances.

In these four sets of guidelines on restructuring of advances, the differentiation has been
broadly made based on whether a borrower is engaged in an industrial activity or a non-
industrial activity. In addition an elaborate institutional mechanism has been laid down for
accounts restructured under CDR Mechanism. The major difference in the prudential
regulations lies in the stipulation that subject to certain conditions, the accounts of
borrowers engaged in industrial activities (under CDR Mechanism, SME Debt Restructuring
Mechanism and outside these mechanisms) continue to be classified in the existing asset
classification category upon restructuring. This benefit of retention of asset classification on
restructuring is not available to the accounts of borrowers engaged in non-industrial
activities except to SME borrowers. Another difference is that the prudential regulations
covering the CDR Mechanism and restructuring of advances extended to SMEs are more
detailed and comprehensive than that covering the restructuring of the rest of the advances
including the advances extended to the industrial units, outside CDR Mechanism. Further,
the CDR Mechanism is available only to the borrowers engaged in industrial activities.

9.2 Since the principles underlying the restructuring of all advances were identical,
the prudential regulations needed to be aligned in all cases. Accordingly, the prudential
norms across all categories of debt restructuring mechanisms, other than those restructured
on account of natural calamities which will continue to be covered by the extant guidelines
issued by the RPCD were harmonised in August 2008. These prudential norms applicable
to all restructurings including those under CDR Mechanism are laid down in para 11. The
details of the institutional / organizational framework for CDR Mechanism and SME Debt
Restructuring Mechanism are given in Annex-2.

It may be noted that while the general principles laid down in para 11 inter-alia stipulate that
'standard' advances should be re-classified as 'sub-standard' immediately on restructuring,
all borrowers, with the exception of the borrowal categories specified in para 14.1 below ( i.e
consumer and personal advances, advances classified as capital market and real estate
exposures), will be entitled to retain the asset classification upon restructuring, subject to
the conditions enumerated in para 14.2.

9.3 The CDR Mechanism (Annex 2) will also be available to the corporates
engaged in non-industrial activities, if they are otherwise eligible for restructuring as per the
criteria laid down for this purpose. Further, banks are also encouraged to strengthen the co-
ordination among themselves in the matter of restructuring of consortium / multiple banking
accounts, which are not covered under the CDR Mechanism.

10. Key Concepts

Key concepts used in these guidelines are defined in Annex-3.

11. General Principles and Prudential Norms for Restructured Advances

The principles and prudential norms laid down in this paragraph are applicable to all
advances including the borrowers, who are eligible for special regulatory treatment for asset
classification as specified in para 14. In these cases, the provisions of paras 11.1.2, 11.2.1
and 11.2.2 would stand modified by the provisions in para 14.

11.1 Eligibility criteria for restructuring of advances

11.1.1 Banks may restructure the accounts classified under 'standard', 'sub-
standard' and 'doubtful' categories.

11.1.2 Banks can not reschedule / restructure / renegotiate borrowal accounts

with retrospective effect. While a restructuring proposal is under consideration, the
usual asset classification norms would continue to apply. The process of re-
classification of an asset should not stop merely because restructuring proposal is
under consideration. The asset classification status as on the date of approval of the
restructured package by the competent authority would be relevant to decide the
asset classification status of the account after restructuring / rescheduling /
renegotiation. In case there is undue delay in sanctioning a restructuring package
and in the meantime the asset classification status of the account undergoes
deterioration, it would be a matter of supervisory concern.

11.1.3 Normally, restructuring can not take place unless alteration / changes
in the original loan agreement are made with the formal consent / application of the
debtor. However, the process of restructuring can be initiated by the bank in
deserving cases subject to customer agreeing to the terms and conditions.

11.1.4 No account will be taken up for restructuring by the banks unless the
financial viability is established and there is a reasonable certainty of repayment from
the borrower, as per the terms of restructuring package. The viability should be
determined by the banks based on the acceptable viability benchmarks determined
by them, which may be applied on a case-by-case basis, depending on merits of
each case. Illustratively, the parameters may include the Return on Capital
Employed, Debt Service Coverage Ratio, Gap between the Internal Rate of Return
and Cost of Funds and the amount of provision required in lieu of the diminution in
the fair value of the restructured advance. The accounts not considered viable should
not be restructured and banks should accelerate the recovery measures in respect of
such accounts. Any restructuring done without looking into cash flows of the borrower
and assessing the viability of the projects / activity financed by banks would be
treated as an attempt at ever greening a weak credit facility and would invite
supervisory concerns / action.

11.1.5 While the borrowers indulging in frauds and malfeasance will continue
to remain ineligible for restructuring, banks may review the reasons for classification
of the borrowers as wilful defaulters specially in old cases where the manner of
classification of a borrower as a wilful defaulter was not transparent and satisfy itself
that the borrower is in a position to rectify the wilful default. The restructuring of such
cases may be done with Board's approval, while for such accounts the restructuring
under the CDR Mechanism may be carried out with the approval of the Core Group
only.

11.1.6 BIFR cases are not eligible for restructuring without their express
approval. CDR Core Group in the case of advances restructured under CDR
Mechanism / the lead bank in the case of SME Debt Restructuring Mechanism and
the individual banks in other cases, may consider the proposals for restructuring in
such cases, after ensuring that all the formalities in seeking the approval from BIFR
are completed before implementing the package.
11.2 Asset classification norms

Restructuring of advances could take place in the following stages :

(a) before commencement of commercial production / operation;

(b) after commencement of commercial production / operation but before

the asset has been classified as 'sub-standard';

(c) after commencement of commercial production / operation and the

asset has been classified as 'sub-standard' or 'doubtful'.

11.2.1 The accounts classified as 'standard assets' should be immediately re-

classified as 'sub-standard assets' upon restructuring.

11.2.2 The non-performing assets, upon restructuring, would continue to have

the same asset classification as prior to restructuring and slip into further lower asset
classification categories as per extant asset classification norms with reference to the
pre-restructuring repayment schedule.

11.2.3 All restructured accounts which have been classified as non-performing

assets upon restructuring, would be eligible for up-gradation to the 'standard'
category after observation of 'satisfactory performance' during the 'specified period'
(Annex-3).

11.2.4 In case, however, satisfactory performance after the specified period is

not evidenced, the asset classification of the restructured account would be governed
as per the applicable prudential norms with reference to the pre-restructuring
payment schedule.

11.2.5 Any additional finance may be treated as 'standard asset', up to a

period of one year after the first interest / principal payment, whichever is earlier, falls
due under the approved restructuring package. However, in the case of accounts
where the prerestructuring facilities were classified as 'sub-standard' and 'doubtful',
interest income on the additional finance should be recognised only on cash basis. If
the restructured asset does not qualify for upgradation at the end of the above
specified one year period, the additional finance shall be placed in the same asset
classification category as the restructured debt.

11.2.6 In case a restructured asset, which is a standard asset on restructuring,

is subjected to restructuring on a subsequent occasion, it should be classified as
substandard. If the restructured asset is a sub-standard or a doubtful asset and is
 subjected to restructuring, on a subsequent occasion, its asset classification will be
reckoned from the date when it became NPA on the first occasion. However, such
advances restructured on second or more occasion may be allowed to be upgraded
to standard category after one year from the date of first payment of interest or
repayment of principal whichever falls due earlier in terms of the current restructuring
package subject to satisfactory performance.

11.3 Income recognition norms

Subject to provisions of paragraphs 11.2.5, 12.2 and 13.2, interest income in respect of
restructured accounts classified as 'standard assets' will be recognized on accrual basis
and that in respect of the accounts classified as 'non-performing assets' will be recognized
on cash basis.

11.4 Provisioning norms

11.4.1 Normal provisions

Banks will hold provision against the restructured advances as per the existing
provisioning norms.

11.4.2 Provision for diminution in the fair value of restructured advances

(i) Reduction in the rate of interest and / or reschedulement of

the repayment of principal amount, as part of the restructuring, will result in
diminution in the fair value of the advance. Such diminution in value is an
economic loss for the bank and will have impact on the bank's market value
of equity. It is, therefore, necessary for banks to measure such diminution in
the fair value of the advance and make provisions for it by debit to Profit &
Loss Account. Such provision should be held in addition to the provisions as
per existing provisioning norms as indicated in para 11.4.1 above, and in an
account distinct from that for normal provisions.

For this purpose, the erosion in the fair value of the advance should be
computed as the difference between the fair value of the loan before and
after restructuring. Fair value of the loan before restructuring will be
computed as the present value of cash flows representing the interest at the
existing rate charged on the advance before restructuring and the principal,
discounted at a rate equal to the bank's BPLR as on the date of restructuring
plus the appropriate term premium and credit risk premium for the borrower
 category on the date of restructuring. Fair value of the loan after restructuring
will be computed as the present value of cash flows representing the interest
at the rate charged on the advance on restructuring and the principal,
discounted at a rate equal to the bank's BPLR as on the date of restructuring
plus the appropriate term premium and credit risk premium for the borrower
category on the date of restructuring.

The above formula moderates the swing in the diminution of present value of
loans with the interest rate cycle and will have to follow consistently by banks
in future. Further, it is reiterated that the provisions required as above arise
due to the action of the banks resulting in change in contractual terms of the
loan upon restructuring which are in the nature of financial concessions.
These provisions are distinct from the provisions which are linked to the
asset classification of the account classified as NPA and reflect the
impairment due to deterioration in the credit quality of the loan. Thus, the two
types of the provisions are not substitute for each other.

(ii) In the case of working capital facilities, the diminution in the fair
value of the cash credit / overdraft component may be computed as indicated
in para (i) above, reckoning the higher of the outstanding amount or the limit
sanctioned as the principal amount and taking the tenor of the advance as
one year. The term premium in the discount factor would be as applicable for
one year. The fair value of the term loan components (Working Capital Term
Loan and Funded Interest Term Loan) would be computed as per actual
cash flows and taking the term premium in the discount factor as applicable
for the maturity of the respective term loan components.

(iii) In the event any security is taken in lieu of the diminution in the
fair value of the advance, it should be valued at Re.1/- till maturity of the
security. This will ensure that the effect of charging off the economic sacrifice
to the Profit & Loss account is not negated.

(iv) The diminution in the fair value may be re-computed on each

balance sheet date till satisfactory completion of all repayment obligations
and full repayment of the outstanding in the account, so as to capture the
changes in the fair value on account of changes in BPLR, term premium and
the credit category of the borrower. Consequently, banks may provide for the
shortfall in provision or reverse the amount of excess provision held in the
distinct account.
 (v) If due to lack of expertise / appropriate infrastructure, a bank finds
it difficult to ensure computation of diminution in the fair value of advances
extended by small / rural branches, as an alternative to the methodology
prescribed above for computing the amount of diminution in the fair value,
banks will have the option of notionally computing the amount of diminution in
the fair value and providing therefor, at five percent of the total exposure, in
respect of all restructured accounts where the total dues to bank(s) are less
than rupees one crore till the financial year ending March 2011. The position
would be reviewed thereafter.

11.4.3 The total provisions required against an account ( normal provisions

plus provisions in lieu of diminution in the fair value of the advance) are capped at
100% of the outstanding debt amount.

12. Prudential Norms for Conversion of Principal into Debt / Equity

12.1 Asset classification norms

A part of the outstanding principal amount can be converted into debt or equity
instruments as part of restructuring. The debt / equity instruments so created will be
classified in the same asset classification category in which the restructured advance has
been classified. Further movement in the asset classification of these instruments would
also be determined based on the subsequent asset classification of the restructured
advance.

12.2 Income recognition norms

12.2.1 Standard Accounts

In the case of restructured accounts classified as 'standard', the income, if any,

generated by these instruments may be recognised on accrual basis.

12.2.2 Non- Performing Accounts

In the case of restructured accounts classified as non-performing assets, the income,

if any, generated by these instruments may be recognised only on cash basis.

12.3 Valuation and provisioning norms

These instruments should be held under AFS and valued as per usual valuation norms.
Equity classified as standard asset should be valued either at market value, if quoted, or at
break-up value, if not quoted (without considering the revaluation reserve, if any,)which is to
be ascertained from the company's latest balance sheet. In case the latest balance sheet is
not available the shares are to be valued at Rs 1. Equity instrument classified as NPA
should be valued at market value, if quoted, and in case where equity is not quoted,it should
be valued at Rs. 1. Depreciation on these instruments should not be offset against the
appreciation in any other securities held under the AFS category.

13. Prudential Norms for Conversion of Unpaid Interest into 'Funded Interest Term
Loan' (FITL), Debt or Equity Instruments

13.1 Asset classification norms

The FITL / debt or equity instrument created by conversion of unpaid interest will be
classified in the same asset classification category in which the restructured advance has
been classified. Further movement in the asset classification of FITL / debt or equity
instruments would also be determined based on the subsequent asset classification of the
restructured advance.

13.2 Income recognition norms

13.2.1 The income, if any, generated by these instruments may be recognised

on accrual basis, if these instruments are classified as 'standard', and on cash basis
in the cases where these have been classified as a non-performing asset.

13.2.2 The unrealised income represented by FITL / Debt or equity instrument

should have a corresponding credit in an account styled as "Sundry Liabilities
Account (Interest Capitalization)".

13.2.3 In the case of conversion of unrealised interest income into equity,

which is quoted, interest income can be recognized after the account is upgraded to
standard category at market value of equity, on the date of such up gradation, not
exceeding the amount of interest converted into equity.

13.2.4 Only on repayment in case of FITL or sale / redemption proceeds of the

debt / equity instruments, the amount received will be recognized in the P&L
Account, while simultaneously reducing the balance in the "Sundry Liabilities Account
(Interest Capitalisation)".
13.3 Valuation & Provisioning norms

Valuation and provisioning norms would be as per para 12.3 above. The depreciation, if
any, on valuation may be charged to the Sundry Liabilities (Interest Capitalisation) Account.

14. Special Regulatory Treatment for Asset Classification

14.1 The special regulatory treatment for asset classification, in modification to the
provisions in this regard stipulated in para 11, will be available to the borrowers engaged in
important business activities, subject to compliance with certain conditions as enumerated
in para 14.2 below. Such treatment is not extended to the following categories of advances:

i. Consumer and personal advances;

ii. Advances classified as Capital market exposures;

iii. Advances classified as commercial real estate exposures

The asset classification of these three categories accounts as well as that of other accounts
which do not comply with the conditions enumerated in para 14.2, will be governed by the
prudential norms in this regard described in para 11 above.

14.2 Elements of special regulatory framework

The special regulatory treatment has the following two components :

(i) Incentive for quick implementation of the restructuring package.

(ii) Retention of the asset classification of the restructured account in the

pre-restructuring asset classification category

14.2.1 Incentive for quick implementation of the restructuring package

As stated in para 11.1.2, during the pendency of the application for

restructuring of the advance with the bank, the usual asset classification norms would
continue to apply. The process of reclassification of an asset should not stop merely
because the application is under consideration. However, as an incentive for quick
implementation of the package, if the approved package is implemented by the bank
as per the following time schedule, the asset classification status may be restored to
the position which existed when the reference was made to the CDR Cell in respect
of cases covered under the CDR Mechanism or when the restructuring application
was received by the bank in non-CDR cases:
 (i) Within 120 days from the date of approval under the CDR Mechanism.

(ii) Within 90 days from the date of receipt of application by the bank in
cases other than those restructured under the CDR Mechanism.

14.2.2 Asset classification benefits

Subject to the compliance with the undernoted conditions in addition to the

adherence to the prudential framework laid down in para 11:

(i) In modification to para 11.2.1, an existing 'standard asset' will not be

downgraded to the sub-standard category upon restructuring.

(ii) In modification to para 11.2.2, during the specified period, the asset
classification of the sub-standard / doubtful accounts will not deteriorate
upon restructuring, if satisfactory performance is demonstrated during
the specified period.

However, these benefits will be available subject to compliance with the following
conditions:

i) The dues to the bank are 'fully secured' as defined in Annex 3. The
condition of being fully secured by tangible security will not be applicable in the
following cases:

(a) SSI borrowers, where the outstanding is up to Rs.25 lakh.

(b) Infrastructure projects, provided the cash flows generated from

these projects are adequate for repayment of the advance, the
financing bank(s) have in place an appropriate mechanism to
escrow the cash flows, and also have a clear and legal first claim
on these cash flows.

ii) The unit becomes viable in 10 years, if it is engaged in infrastructure

activities, and in 7 years in the case of other units.

iii) The repayment period of the restructured advance including the

moratorium, if any, does not exceed 15 years in the case of infrastructure
advances and 10 years in the case of other advances. The aforesaid ceiling of
10 years would not be applicable for restructured home loans; in these cases
 the Board of Director of the banks should prescribe the maximum period for
restructured advance keeping in view the safety and soundness of the
advances. Lending to individuals meant for acquiring residential property which
are fully secured by mortgages on residential property that is or will be occupied
by the borrower or that is rented are risk weighted as under the new capital
adequacy framework, provided the LTV is not more than 75% , based on board
approved valuation policy. However, the restructured housing loans should be
risk weighted with an additional risk weight of 25 percentage points to the risk
weight prescribed already.

iv) Promoters' sacrifice and additional funds brought by them should be a

minimum of 15% of banks' sacrifice.

v) Personal guarantee is offered by the promoter except when the unit is

affected by external factors pertaining to the economy and industry.

vi) The restructuring under consideration is not a 'repeated restructuring'

as defined in para (v) of Annex 3.

15. Miscellaneous

15.1 The banks should decide on the issue regarding convertibility (into equity)
option as a part of restructuring exercise whereby the banks / financial institutions shall
have the right to convert a portion of the restructured amount into equity, keeping in view
the statutory requirement under Section 19 of the Banking Regulation Act, 1949, (in the
case of banks) and relevant SEBI regulations.

15.2 Acquisition of equity shares / convertible bonds / convertible debentures in

companies by way of conversion of debt / overdue interest can be done without seeking
prior approval from RBI, even if by such acquisition the prudential capital market exposure
limit prescribed by the RBI is breached. However, this will be subject to reporting of such
holdings to RBI, Department of Banking Supervision (DBS), every month along with the
regular DSB Return on Asset Quality. Nonetheless, banks will have to comply with the
provisions of Section 19(2) of the Banking Regulation Act, 1949.

15.3 Acquisition of non-SLR securities by way of conversion of debt is exempted

from the mandatory rating requirement and the prudential limit on investment in unlisted
non-SLR securities, prescribed by the RBI, subject to periodical reporting to the RBI in the
aforesaid DSB return.
15.4 Banks may consider incorporating in the approved restructuring packages
creditor's rights to accelerate repayment and the borrower's right to pre-pay. The right of
recompense should be based on certain performance criteria to be decided by the banks.

15.5 Since the spillover effects of the global downturn had also started affecting
the Indian economy particularly from September 2008 onwards creating stress for the
otherwise viable units / activities, certain modifications were made in the guidelines on
restructuring as a onetime measure and for a limited period of time i.e. up to June 30, 2009.
These relaxations have ceased to operate from July 1, 2009; however the same have been
consolidated in Annex 6.

16. Disclosures

Banks should also disclose in their published annual Balance Sheets, under "Notes on
Accounts", information relating to number and amount of advances restructured, and the
amount of diminution in the fair value of the restructured advances in Annex-4. The
information would be required for advances restructured under CDR Mechanism, SME Debt
Restructuring Mechanism and other categories separately.

17. Illustrations

A few illustrations on the asset classification of restructured accounts are given in Annex-5.

18. We re-iterate that the basic objective of restructuring is to preserve economic value
of units, not evergreening of problem accounts. This can be achieved by banks and the
borrowers only by careful assessment of the viability, quick detection of weaknesses in
accounts and a time-bound implementation of restructuring packages.
 Part C

Agricultural Debt Waiver and Debt Relief Scheme, 2008 - Prudential Norms on
Income Recognition, Asset Classification, Provisioning, and Capital Adequacy

19. The Background

The Hon'ble Finance Minister, Government of India, in his Budget Speech (paragraph 73)
for 2008-09 has announced a debt waiver and debt relief scheme for farmers, for
implementation by, inter alia, all scheduled commercial banks (SCBs), and Local Area
Banks (LABs). The detailed scheme announced by the Government of India was
communicated to the SCBs and LABs vide our circular
RPCD.No.PLFS.BC.72/05.04.02/2007-08 dated May 23, 2008. The guidelines pertaining to
Income Recognition, Asset Classification and Provisioning, and Capital Adequacy as
applicable to the loans covered by the captioned scheme, are furnished below.

20. Prudential Norms for the Borrowal Accounts Covered under the
Agricultural Debt Waiver and Debt Relief Scheme, 2008 (ADWDRS)

As advised vide the circular RPCD.No.PLFS.BC.72/05.04.02/2007-08 dated May 23, 2008,

while the entire 'eligible amount' shall be waived in the case of a small or marginal farmer, in
the case of 'other farmers', there will be a one time settlement scheme (OTS) under which
the farmer will be given a rebate of 25 per cent of the 'eligible amount' subject to the
condition that the farmer repays the balance of 75 per cent of the 'eligible amount'.

20.1 Norms for the Accounts subjected to Debt Waiver

20.1.1 As regards the small and marginal farmers eligible for debt waiver, the
amount eligible for waiver, as defined in the Para 4 of the enclosure to the aforesaid
circular, pending receipt from the Government of India, may be transferred by the
banks to a separate account named "Amount receivable from Government of India
under Agricultural Debt Waiver Scheme 2008". The balance in this account should
be reflected in Schedule 9 (Advances) of the Balance sheet.

20.1.2 The balance in this account may be treated by the banks as a "performing"
asset, provided adequate provision is made for the loss in Present Value (PV) terms,
computed under the assumption that such payments would be received from
Government of India in the following installments :

a) 32% of the total amount due by September 30, 2008,

 b) 19% by July 31, 2009,

c) 39% by July 2010, and

d) the remaining 10% by July 2011.

However, the provision required under the current norms for standard assets, need
not be provided for in respect of the balance in this account.

20.1.3 The discount rate for arriving at the loss in PV terms as at para 20.1.2
above should be taken as 9.56 per cent, being the yield to maturity on 364-day
Government of India Treasury Bill, prevailing as on the date of the circular
DBOD.No.BP.BC.26/21.04.048/2008-09 dated July 30, 2008.

20.1.4 The prudential provisions held in respect of the NPA accounts for which the
debt waiver has been granted may be reckoned for meeting the provisions required
on PV basis.

20.1.5 In case, however, the amount of prudential provision held is more than the
amount of provision required on PV basis, such excess provision may be reversed in
a phased manner. This phased reversal may be effected in the proportion of 32%,
19%, 39%, and 10% during the years ended March 2009, 2010, 2011 and 2012,
respectively, only after the installments due from the Government, for the relative
years, have been received.

20.1.6 On receipt of the final instalment from the Government, the provision made
for loss in PV terms may be transferred to the General Reserves, below the line.

20.1.7 In case the claim of a farmer is specifically rejected at any stage, the asset
classification of the account should be determined with reference to the original date
of NPA (as if the account had not been treated as performing in the interregnum
based on the transfer of the loan balance to the aforesaid account) and suitable
provision should be made. The provision made on PV basis may also be reckoned
against the NPA-provisions required, consequent upon the account being treated as
NPA due to the rejection of the claim.

20.2. Norms for the Accounts subjected to the Debt Relief

20.2.1 Under the scheme, in the case of 'other' farmers, the farmer will be given a
rebate of 25% of the "eligible amount", by the Government by credit to his account,
provided the farmer pays the balance of 75% of the 'eligible amount'. The Scheme
provides for payment of share of 75% by such farmers in three instalments and the
first two instalments shall be for an amount not less than one-third of the farmer's
share. The last dates of payment of the three instalments will be September 30,
2008; March 31, 2009 and June 30, 2009, respectively.

Asset Classification

20.2.2 Where the farmers covered under the Debt Relief Scheme have given the
undertaking, agreeing to pay their share under the OTS, their relevant accounts may
be treated by banks as "standard" / "performing" provided :

(a) adequate provision is made by the banks for the loss in PV terms for
all the receivables due from the borrowers as well as the
Government; and

(b) such farmers pay their share of the settlement within one month of
the due dates

However, no grace period is allowed for the last instalment and the entire share of
the farmer is payable by June 30, 2009

Provisioning

20.2.3 Provisioning for Standard Assets

The accounts subject to debt relief would stand classified as standard assets after
receipt of the aforesaid undertaking from the borrowers. Accordingly, such accounts
would also attract the prudential provisioning as applicable to standard assets.

20.2.4 Provisioning on PV Basis

For computing the amount of loss in PV terms under the Scheme, the cash flows
receivable from the farmers, as per the repayment schedule vide para 20.2.1 above,
as well as from the government should be discounted to the present value. It may be
assumed in this context that the Government's contribution would be received by
June 30, 2010. The discount rate to be applied for the purpose should be the
interest rate at which the loan was granted including the element of interest subsidy,
if any, available from the Government.

20.2.5 The prudential provisions held in respect of the NPA accounts, for which
the debt relief has been granted, may be reckoned for meeting the provisions
required on PV basis as well as for the standard assets (pursuant to classification of
these loans as standard) and shortfall, if any, may be provided for. Thus, the total
provisions held would comprise the provisions required on PV basis, provision for
standard assets and excess prudential provisions, if any, towards NPA.

20.2.6 Provisioning in case of down-gradation of accounts:

As mentioned at para 20.2.2 (b) above, the accounts subject to Debt Relief Scheme
would be classified as standard / performing assets only if the farmers pay their
share of the settlement within one month of the pre-specified due dates. In case,
however, the payments are delayed by the farmers beyond one month of the
respective due dates, the outstanding amount in the relevant accounts of such
farmers shall be treated as NPA. The asset classification of such accounts shall be
determined with reference to the original date of NPA, (as if the account had not
been treated as performing in the interregnum based on the aforesaid undertaking).
On such down-gradation of the accounts, additional provisions as per the extant
prudential norms should also be made.

For meeting this additional provisioning requirement, the excess prudential

provisions, if any, held; the amount of provisions held for standard assets (as per
para 3.3 above) together with the provision made on PV basis, all in respect of such
downgraded account, could be reckoned. Such additional prudential provisions too
should be continued to be held and reversed only as per the stipulation at para
20.2.7 below.

20.2.7 Reversal of Excess Prudential Provisions

In case the amount of the prudential NPA provisions held are larger than the
aggregate of the provision required on PV basis and for the standard assets
(pursuant to classification of these loans as standard), such excess prudential
provision should not be reversed but be continued to be held till the earlier of the two
events, viz., :

(a) till the entire outstanding of the borrower stands repaid - at which
point, the entire amount could be reversed to the P/L account; or

(b) when the amount of such excess provision exceeds the amount
outstanding on account of the repayments by the borrower - at which
point, the amount of provision in excess of the outstanding amount
could be reversed to the P/L account.
 20.2.8 Reversal of the Provisions made on PV Basis
The provision made on PV basis represents a permanent loss to the bank on
account of delayed receipt of cash flows and hence, should not be reversed to the
P/L Account. The amount of such provision should, therefore, be carried till the
account is finally settled and after receipt of the Government's contribution under the
Scheme, the amount should be reversed to the General Reserves, below the line.

20.3 Grant of Fresh Loans to the Borrowers covered under the ADWDRS

20.3.1 A small or marginal farmer will become eligible for fresh agricultural loans
upon the eligible amount being waived, in terms of para 7.2 of the enclosure to the
circular RPCD.No.PLFS.BC.72/05.04.02/2007-08 dated May 23, 2008. The fresh
loan may be treated as "performing asset", regardless of the asset classification of
the loan subjected to the Debt Waiver, and its subsequent asset classification
should be governed by the extant IRAC norms.

20.3.2 In case of "other farmers" eligible for fresh short-term production loans and
investment loans, as provided for in Para 7.6 and 7.7, respectively, of the enclosure
to the circular RPCD.No.PLFS.BC.72/05.04.02/2007-08 dated May 23, 2008, these
fresh loans may be treated as "performing assets", regardless of the asset
classification of the loan subjected to the Debt Relief, and its subsequent asset
classification should be governed by the extant IRAC norms.

20.4 Capital Adequacy

The amount outstanding in the account styled as "Amount receivable from Government of
India under Agricultural Debt Waiver Scheme 2008" shall be treated as a claim on the
Government of India and would attract zero risk weight for the purpose of capital adequacy
norms. However, the amount outstanding in the accounts covered by the Debt Relief
Scheme shall be treated as a claim on the borrowers and risk weighted as per the extant
norms. This treatment would apply under the Basel I as well as Basel II Frameworks.

21. Subsequent Modifications to the Prudential Norms

21.1 Interest payment by the GOI

The Government of India has subsequently decided to pay interest on the 2nd, 3rd, and 4th
instalments, payable by July 2009, July 2010, and July 2011 respectively, at the prevailing
Yield to Maturity Rate on 364-day Government of India Treasury Bills. The interest will be
paid on these instalments from the date of the reimbursement of the first instalment (i.e.
November 2008) till the date of the actual reimbursement of each instalment.

In view of the above, in supersession of the instructions contained in paragraphs 20.1.2 to

20.1.7, 20.2.2 (a), and 20.2.4 to 20.2.8 above, it has been decided that the banks need not
make any provisions for the loss in Present Value (PV) terms for moneys receivable only
from the Government of India, for the accounts covered under the Debt Waiver Scheme and
the Debt Relief Scheme.

21.2 Change in instalment schedule of “other farmers” under the Debt Relief Scheme

The Government of India has subsequently decided to make the accounts of "other
farmers" eligible for a debt relief of 25% from Government of India, even if they pay their
entire share of 75% as one single instalment, provided the same is deposited by such
farmers till June 30, 2009. The banks will not charge any interest on the eligible amount till
June 30, 2009.

The Government of India has also advised that the banks / lending institutions are allowed
to receive even less than 75% of the eligible amount under OTS provided the banks /
lending institutions bear the difference themselves and do not claim the same either from
the Government or from the farmer. The Government will pay only 25% of the actual eligible
amount under debt relief.
 Annex - 1
(Cf. para 4.2.13)
Relevant extract of the list of direct agricultural advances, from the Master Circular
on lending to priority sector - RPCD. No. Plan. BC. 9 /04.09.01/ 2008-09 dated July 1,
2008

DIRECT FINANCE

1.1 Finance to individual farmers [including Self Help Groups (SHGs) or Joint Liability
Groups (JLGs), i.e. groups of individual farmers, provided banks maintain
disaggregated data on such finance] for Agriculture
1.1.1 Short-term loans for raising crops, i.e. for crop loans. This will include traditional
/ non-traditional plantations and horticulture.

1.1.2 Advances up to Rs. 10 lakh against pledge/hypothecation of agricultural produce

(including warehouse receipts) for a period not exceeding 12 months,
irrespective of whether the farmers were given crop loans for raising the produce
or not.

1.1.3 Working capital and term loans for financing production and investment
requirements for agriculture.

1.1.4 Loans to small and marginal farmers for purchase of land for agricultural
purposes.

1.1.5 Loans to distressed farmers indebted to non-institutional lenders, against

appropriate collateral or group security.

1.1.6 Loans granted for pre-harvest and post-harvest activities such as spraying,
weeding, harvesting, grading, sorting, processing and transporting undertaken
by individuals, SHGs and cooperatives in rural areas.
1.2 Finance to others [such as corporates, partnership firms and institutions] for
Agriculture
1.2.1 Loans granted for pre-harvest and post harvest activities such as spraying,
weeding, harvesting, grading, sorting and transporting.

1.2.2 Finance up to an aggregate amount of Rs. one crore per borrower for the
purposes listed at 1.1.1, 1.1.2, 1.1.3 and 1.2.1 above.

1.2.3 One-third of loans in excess of Rs. one crore in aggregate per borrower for
agriculture.
 Annex - 2

Organisational Framework for Restructuring of Advances Under

Consortium / Multiple Banking / Syndication Arrangements

A. Corporate Debt Restructuring (CDR) Mechanism

1.1 Objective

The objective of the Corporate Debt Restructuring (CDR) framework is to

ensure timely and transparent mechanism for restructuring the corporate debts
of viable entities facing problems, outside the purview of BIFR, DRT and other
legal proceedings, for the benefit of all concerned. In particular, the framework
will aim at preserving viable corporates that are affected by certain internal and
external factors and minimize the losses to the creditors and other
stakeholders through an orderly and coordinated restructuring programme.

1.2 Scope

The CDR Mechanism has been designed to facilitate restructuring of advances

of borrowers enjoying credit facilities from more than one bank / Financial
Institution (FI) in a coordinated manner. The CDR Mechanism is an
organizational framework institutionalized for speedy disposal of restructuring
proposals of large borrowers availing finance from more than one banks / FIs.
This mechanism will be available to all borrowers engaged in any type of
activity subject to the following conditions :

a) The borrowers enjoy credit facilities from more than one bank / FI under
multiple banking / syndication / consortium system of lending.

b) The total outstanding (fund-based and non-fund based) exposure is

Rs.10 crore or above.

CDR system in the country will have a three tier structure :

• CDR Standing Forum and its Core Group

• CDR Empowered Group
• CDR Cell
2. CDR Standing Forum

2.1 The CDR Standing Forum would be the representative general body of all
financial institutions and banks participating in CDR system. All financial
institutions and banks should participate in the system in their own interest.
CDR Standing Forum will be a selfempowered body, which will lay down
policies and guidelines, and monitor the progress of corporate debt
restructuring.

2.2 The Forum will also provide an official platform for both the creditors and
borrowers (by consultation) to amicably and collectively evolve policies and
guidelines for working out debt restructuring plans in the interests of all
concerned.

2.3 The CDR Standing Forum shall comprise of Chairman & Managing Director,
Industrial Development Bank of India Ltd; Chairman, State Bank of India;
Managing Director & CEO, ICICI Bank Limited; Chairman, Indian Banks'
Association as well as Chairmen and Managing Directors of all banks and
financial institutions participating as permanent members in the system. Since
institutions like Unit Trust of India, General Insurance Corporation, Life
Insurance Corporation may have assumed exposures on certain borrowers,
these institutions may participate in the CDR system. The Forum will elect its
Chairman for a period of one year and the principle of rotation will be followed
in the subsequent years. However, the Forum may decide to have a Working
Chairman as a whole-time officer to guide and carry out the decisions of the
CDR Standing Forum. The RBI would not be a member of the CDR Standing
Forum and Core Group. Its role will be confined to providing broad guidelines.

2.4 The CDR Standing Forum shall meet at least once every six months and would
review and monitor the progress of corporate debt restructuring system. The
Forum would also lay down the policies and guidelines including those relating
to the critical parameters for restructuring (for example, maximum period for a
unit to become viable under a restructuring package, minimum level of
promoters' sacrifice etc.) to be followed by the CDR Empowered Group and
CDR Cell for debt restructuring and would ensure their smooth functioning and
adherence to the prescribed time schedules for debt restructuring. It can also
review any individual decisions of the CDR Empowered Group and CDR Cell.
The CDR Standing Forum may also formulate guidelines for dispensing special
treatment to those cases, which are complicated and are likely to be delayed
beyond the time frame prescribed for processing.
 2.5 A CDR Core Group will be carved out of the CDR Standing Forum to assist the
Standing Forum in convening the meetings and taking decisions relating to
policy, on behalf of the Standing Forum. The Core Group will consist of Chief
Executives of Industrial Development Bank of India Ltd., State Bank of India,
ICICI Bank Ltd, Bank of Baroda, Bank of India, Punjab National Bank, Indian
Banks' Association and Deputy Chairman of Indian Banks' Association
representing foreign banks in India.

2.6 The CDR Core Group would lay down the policies and guidelines to be
followed by the CDR Empowered Group and CDR Cell for debt restructuring.
These guidelines shall also suitably address the operational difficulties
experienced in the functioning of the CDR Empowered Group. The CDR Core
Group shall also prescribe the PERT chart for processing of cases referred to
the CDR system and decide on the modalities for enforcement of the time
frame. The CDR Core Group shall also lay down guidelines to ensure that
over-optimistic projections are not assumed while preparing / approving
restructuring proposals especially with regard to capacity utilization, price of
products, profit margin, demand, availability of raw materials, input-output ratio
and likely impact of imports / international cost competitiveness.

3. CDR Empowered Group

3.1 The individual cases of corporate debt restructuring shall be decided by the
CDR Empowered Group, consisting of ED level representatives of Industrial
Development Bank of India Ltd., ICICI Bank Ltd. and State Bank of India as
standing members, in addition to ED level representatives of financial
institutions and banks who have an exposure to the concerned company.
While the standing members will facilitate the conduct of the Group's meetings,
voting will be in proportion to the exposure of the creditors only. In order to
make the CDR Empowered Group effective and broad based and operate
efficiently and smoothly, it would have to be ensured that participating
institutions / banks approve a panel of senior officers to represent them in the
CDR Empowered Group and ensure that they depute officials only from among
the panel to attend the meetings of CDR Empowered Group. Further,
nominees who attend the meeting pertaining to one account should invariably
attend all the meetings pertaining to that account instead of deputing their
representatives.

3.2 The level of representation of banks / financial institutions on the CDR

Empowered Group should be at a sufficiently senior level to ensure that
 concerned bank / FI abides by the necessary commitments including
sacrifices, made towards debt restructuring. There should be a general
authorisation by the respective Boards of the participating institutions / banks
in favour of their representatives on the CDR Empowered Group, authorising
them to take decisions on behalf of their organization, regarding restructuring
of debts of individual corporates.

3.3 The CDR Empowered Group will consider the preliminary report of all cases of
requests of restructuring, submitted to it by the CDR Cell. After the Empowered
Group decides that restructuring of the company is prima-facie feasible and the
enterprise is potentially viable in terms of the policies and guidelines evolved
by Standing Forum, the detailed restructuring package will be worked out by
the CDR Cell in conjunction with the Lead Institution. However, if the lead
institution faces difficulties in working out the detailed restructuring package,
the participating banks / financial institutions should decide upon the alternate
institution / bank which would work out the detailed restructuring package at
the first meeting of the Empowered Group when the preliminary report of the
CDR Cell comes up for consideration.

3.4 The CDR Empowered Group would be mandated to look into each case of
debt restructuring, examine the viability and rehabilitation potential of the
Company and approve the restructuring package within a specified time frame
of 90 days, or at best within 180 days of reference to the Empowered Group.
The CDR Empowered Group shall decide on the acceptable viability
benchmark levels on the following illustrative parameters, which may be
applied on a case-by-case basis, based on the merits of each case :

* Return on Capital Employed (ROCE),

* Debt Service Coverage Ratio (DSCR),

Gap between the Internal Rate of Return (IRR) and the Cost of Fund
*
(CoF),

* Extent of sacrifice.

3.5 The Board of each bank / FI should authorise its Chief Executive Officer (CEO)
and / or Executive Director (ED) to decide on the restructuring package in
respect of cases referred to the CDR system, with the requisite requirements
to meet the control needs. CDR Empowered Group will meet on two or three
occasions in respect of each borrowal account. This will provide an opportunity
to the participating members to seek proper authorisations from their CEO /
 ED, in case of need, in respect of those cases where the critical parameters of
restructuring are beyond the authority delegated to him / her.

3.6 The decisions of the CDR Empowered Group shall be final. If restructuring of
debt is found to be viable and feasible and approved by the Empowered
Group, the company would be put on the restructuring mode. If restructuring is
not found viable, the creditors would then be free to take necessary steps for
immediate recovery of dues and / or liquidation or winding up of the company,
collectively or individually.

4 CDR Cell

4.1 The CDR Standing Forum and the CDR Empowered Group will be assisted by
a CDR Cell in all their functions. The CDR Cell will make the initial scrutiny of
the proposals received from borrowers / creditors, by calling for proposed
rehabilitation plan and other information and put up the matter before the CDR
Empowered Group, within one month to decide whether rehabilitation is prima
facie feasible. If found feasible, the CDR Cell will proceed to prepare detailed
Rehabilitation Plan with the help of creditors and, if necessary, experts to be
engaged from outside. If not found prima facie feasible, the creditors may start
action for recovery of their dues.

4.2 All references for corporate debt restructuring by creditors or borrowers will be
made to the CDR Cell. It shall be the responsibility of the lead institution /
major stakeholder to the corporate, to work out a preliminary restructuring plan
in consultation with other stakeholders and submit to the CDR Cell within one
month. The CDR Cell will prepare the restructuring plan in terms of the general
policies and guidelines approved by the CDR Standing Forum and place for
consideration of the Empowered Group within 30 days for decision. The
Empowered Group can approve or suggest modifications but ensure that a
final decision is taken within a total period of 90 days. However, for sufficient
reasons the period can be extended up to a maximum of 180 days from the
date of reference to the CDR Cell.

4.3 The CDR Standing Forum, the CDR Empowered Group and CDR Cell is at
present housed in Industrial Development Bank of India Ltd. However, it may
be shifted to another place if considered necessary, as may be decided by the
Standing Forum. The administrative and other costs shall be shared by all
financial institutions and banks. The sharing pattern shall be as determined by
the Standing Forum.
 4.4 CDR Cell will have adequate members of staff deputed from banks and
financial institutions. The CDR Cell may also take outside professional help.
The cost in operating the CDR mechanism including CDR Cell will be met from
contribution of the financial institutions and banks in the Core Group at the rate
of Rs.50 lakh each and contribution from other institutions and banks at the
rate of Rs.5 lakh each.

5. Other features

5.1 Eligibility criteria

5.1.1 The scheme will not apply to accounts involving only one financial
institution or one bank. The CDR mechanism will cover only multiple
banking accounts / syndication / consortium accounts of corporate
borrowers engaged in any type of activity with outstanding fund-based
and non-fund based exposure of Rs.10 crore and above by banks and
institutions.

5.1.2 The Category 1 CDR system will be applicable only to accounts

classified as 'standard' and 'sub-standard'. There may be a situation
where a small portion of debt by a bank might be classified as doubtful.
In that situation, if the account has been classified as 'standard'/
'substandard' in the books of at least 90% of creditors (by value), the
same would be treated as standard / substandard, only for the purpose
of judging the account as eligible for CDR, in the books of the remaining
10% of creditors. There would be no requirement of the account /
company being sick, NPA or being in default for a specified period
before reference to the CDR system. However, potentially viable cases
of NPAs will get priority. This approach would provide the necessary
flexibility and facilitate timely intervention for debt restructuring.
Prescribing any milestone(s) may not be necessary, since the debt
restructuring exercise is being triggered by banks and financial
institutions or with their consent.

5.1.3 While corporates indulging in frauds and malfeasance even in a single

bank will continue to remain ineligible for restructuring under CDR
mechanism as hitherto, the Core group may review the reasons for
classification of the borrower as wilful defaulter specially in old cases
where the manner of classification of a borrower as a wilful defaulter
was not transparent and satisfy itself that the borrower is in a position to
 rectify the wilful default provided he is granted an opportunity under the
CDR mechanism. Such exceptional cases may be admitted for
restructuring with the approval of the Core Group only. The Core Group
may ensure that cases involving frauds or diversion of funds with
malafide intent are not covered.

5.1.4 The accounts where recovery suits have been filed by the creditors
against the company, may be eligible for consideration under the CDR
system provided, the initiative to resolve the case under the CDR
system is taken by at least 75% of the creditors (by value) and 60% of
creditors (by number).

5.1.5 BIFR cases are not eligible for restructuring under the CDR system.
However, large value BIFR cases may be eligible for restructuring under
the CDR system if specifically recommended by the CDR Core Group.
The Core Group shall recommend exceptional BIFR cases on a case-to-
case basis for consideration under the CDR system. It should be
ensured that the lending institutions complete all the formalities in
seeking the approval from BIFR before implementing the package.

5.2 Reference to CDR system

5.2.1 Reference to Corporate Debt Restructuring System could be triggered

by (i) any or more of the creditor who have minimum 20% share in either
working capital or term finance, or (ii) by the concerned corporate, if
supported by a bank or financial institution having stake as in (i) above.

5.2.2 Though flexibility is available whereby the creditors could either consider
restructuring outside the purview of the CDR system or even initiate
legal proceedings where warranted, banks / FIs should review all
eligible cases where the exposure of the financial system is more than
Rs.100 crore and decide about referring the case to CDR system or to
proceed under the new Securitisation and Reconstruction of Financial
Assets and Enforcement of Securities Interest Act, 2002 or to file a suit
in DRT etc.

5.3 Legal Basis

5.3.1 CDR is a non-statutory mechanism which is a voluntary system based

on Debtor- Creditor Agreement (DCA) and Inter-Creditor Agreement
(ICA). The Debtor-Creditor Agreement (DCA) and the Inter-Creditor
Agreement (ICA) shall provide the legal basis to the CDR mechanism.
 The debtors shall have to accede to the DCA, either at the time of
original loan documentation (for future cases) or at the time of reference
to Corporate Debt Restructuring Cell. Similarly, all participants in the
CDR mechanism through their membership of the Standing Forum shall
have to enter into a legally binding agreement, with necessary
enforcement and penal clauses, to operate the System through laid-
down policies and guidelines. The ICA signed by the creditors will be
initially valid for a period of 3 years and subject to renewal for further
periods of 3 years thereafter. The lenders in foreign currency outside the
country are not a part of CDR system. Such creditors and also creditors
like GIC, LIC, UTI, etc., who have not joined the CDR system, could join
CDR mechanism of a particular corporate by signing transaction to
transaction ICA, wherever they have exposure to such corporate.

5.3.2 The Inter-Creditor Agreement would be a legally binding agreement

amongst the creditors, with necessary enforcement and penal clauses,
wherein the creditors would commit themselves to abide by the various
elements of CDR system. Further, the creditors shall agree that if 75 per
cent of creditors by value and 60 per cent of the creditors by number,
agree to a restructuring package of an existing debt (i.e., debt
outstanding), the same would be binding on the remaining creditors.
Since Category 1 CDR Scheme covers only standard and sub-standard
accounts, which in the opinion of 75 per cent of the creditors by value
and 60 per cent of creditors by number, are likely to become performing
after introduction of the CDR package, it is expected that all other
creditors (i.e., those outside the minimum 75 per cent by value and 60
per cent by number) would be willing to participate in the entire CDR
package, including the agreed additional financing.

5.3.3 In order to improve effectiveness of the CDR mechanism a clause may

be incorporated in the loan agreements involving consortium / syndicate
accounts whereby all creditors, including those which are not members
of the CDR mechanism, agree to be bound by the terms of the
restructuring package that may be approved under the CDR
mechanism, as and when restructuring may become necessary.

5.3.4 One of the most important elements of Debtor-Creditor Agreement

would be 'stand still' agreement binding for 90 days, or 180 days by both
sides. Under this clause, both the debtor and creditor(s) shall agree to a
 legally binding 'stand-still' whereby both the parties commit themselves
not to take recourse to any other legal action during the 'stand-still'
period, this would be necessary for enabling the CDR System to
undertake the necessary debt restructuring exercise without any outside
intervention, judicial or otherwise. However, the stand-still clause will be
applicable only to any civil action either by the borrower or any lender
against the other party and will not cover any criminal action. Further,
during the stand-still period, outstanding foreign exchange forward
contracts, derivative products, etc., can be crystallised, provided the
borrower is agreeable to such crystallisation. The borrower will
additionally undertake that during the stand-still period the documents
will stand extended for the purpose of limitation and also that he will not
approach any other authority for any relief and the directors of the
borrowing company will not resign from the Board of Directors during
the stand-still period.

5.4 Sharing of Additional finance

5.4.1 Additional finance, if any, is to be provided by all creditors of a 'standard'

or 'substandard account' irrespective of whether they are working capital
or term creditors, on a pro-rata basis. In case for any internal reason,
any creditor (outside the minimum 75 per cent and 60 per cent) does not
wish to commit additional financing, that creditor will have an option in
accordance with the provisions of para 5.6.

5.4.2 The providers of additional finance, whether existing creditors or new

creditors, shall have a preferential claim, to be worked out under the
restructuring package, over the providers of existing finance with
respect to the cash flows out of recoveries, in respect of the additional
exposure

5.5 Exit Option

5.5.1 As stated in para 5.5.1 a creditor (outside the minimum 75 per cent and
60 per cent) who for any internal reason does not wish to commit
additional finance will have an option. At the same time, in order to
avoid the "free rider" problem, it is necessary to provide some
disincentive to the creditor who wishes to exercise this option. Such
creditors can either (a) arrange for its share of additional finance to be
 provided by a new or existing creditor, or (b) agree to the deferment of
the first year's interest due to it after the CDR package becomes
effective. The first year's deferred interest as mentioned above, without
compounding, will be payable along with the last instalment of the
principal due to the creditor.

5.5.2 In addition, the exit option will also be available to all lenders within the
minimum 75 percent and 60 percent provided the purchaser agrees to
abide by restructuring package approved by the Empowered Group.
The exiting lenders may be allowed to continue with their existing level
of exposure to the borrower provided they tie up with either the existing
lenders or fresh lenders taking up their share of additional finance.

5.5.3 The lenders who wish to exit from the package would have the option to
sell their existing share to either the existing lenders or fresh lenders, at
an appropriate price, which would be decided mutually between the
exiting lender and the taking over lender. The new lenders shall rank on
par with the existing lenders for repayment and servicing of the dues
since they have taken over the existing dues to the exiting lender.

5.5.4 In order to bring more flexibility in the exit option, One Time Settlement
can also be considered, wherever necessary, as a part of the
restructuring package. If an account with any creditor is subjected to
One Time Settlement (OTS) by a borrower before its reference to the
CDR mechanism, any fulfilled commitments under such OTS may not
be reversed under the restructured package. Further payment
commitments of the borrower arising out of such OTS may be factored
into the restructuring package.

5.6 Category 2 CDR System

5.6.1 There have been instances where the projects have been found to be
viable by the creditors but the accounts could not be taken up for
restructuring under the CDR system as they fell under 'doubtful'
category. Hence, a second category of CDR is introduced for cases
where the accounts have been classified as 'doubtful' in the books of
creditors, and if a minimum of 75% of creditors (by value) and 60%
creditors (by number) satisfy themselves of the viability of the account
and consent for such restructuring, subject to the following conditions :

(i) It will not be binding on the creditors to take up additional financing

 worked out under the debt restructuring package and the decision
to lend or not to lend will depend on each creditor bank / FI
separately. In other words, under the proposed second category of
the CDR mechanism, the existing loans will only be restructured
and it would be up to the promoter to firm up additional financing
arrangement with new or existing creditors individually.

(ii) All other norms under the CDR mechanism such as the standstill
clause, asset classification status during the pendency of
restructuring under CDR, etc., will continue to be applicable to this
category also.

5.6.2 No individual case should be referred to RBI. CDR Core Group may
take a final decision whether a particular case falls under the CDR
guidelines or it does not.

5.6.3 All the other features of the CDR system as applicable to the First
Category will also be applicable to cases restructured under the Second
Category.

5.7 Incorporation of 'right to recompense' clause

All CDR approved packages must incorporate creditors' right to accelerate

repayment and borrowers' right to pre-pay. The right of recompense should be
based on certain performance criteria to be decided by the Standing Forum.

B SME Debt Restructuring Mechanism

Apart from CDR Mechanism, there exists a much simpler mechanism for
restructuring of loans availed by Small and Medium Enterprises (SMEs). Unlike in
the case of CDR Mechanism, the operational rules of the mechanism have been left
to be formulated by the banks concerned. This mechanism will be applicable to all
the borrowers which have funded and non-funded outstanding up to Rs.10 crore
under multiple /consortium banking arrangement. Major elements of this
arrangements are as under :

(i) Under this mechanism, banks may formulate, with the approval of their Board
of Directors, a debt restructuring scheme for SMEs within the prudential norms
laid down by RBI. Banks may frame different sets of policies for borrowers
 belonging to different sectors within the SME if they so desire.

(ii) While framing the scheme, banks may ensure that the scheme is simple to
comprehend and will, at the minimum, include parameters indicated in these
guidelines.

(iii) The main plank of the scheme is that the bank with the maximum outstanding
may work out the restructuring package, along with the bank having the
second largest share.

(iv) Banks should work out the restructuring package and implement the same
within a maximum period of 90 days from date of receipt of requests.

(v) The SME Debt Restructuring Mechanism will be available to all borrowers
engaged in any type of activity.

(vi) Banks may review the progress in rehabilitation and restructuring of SMEs
accounts on a quarterly basis and keep the Board informed.
 Annex - 3

Key Concepts

(i) Advances

The term 'Advances' will mean all kinds of credit facilities including cash credit,
overdrafts, term loans, bills discounted / purchased, factored receivables, etc. and
investments other than that in the nature of equity.

(ii) Agricultural Activities

As defined in RPCD circular RPCD.No.Plan.BC.84/04.09.01/2006-07 dated April 30,

2007 as modified from time to time.

(iii) Fully Secured

When the amounts due to a bank (present value of principal and interest receivable as
per restructured loan terms) are fully covered by the value of security, duly charged in
its favour in respect of those dues, the bank's dues are considered to be fully secured.
While assessing the realisable value of security, primary as well as collateral securities
would be reckoned, provided such securities are tangible securities and are not in
intangible form like guarantee etc., of the promoter / others. However, for this purpose
the bank guarantees, State Government Guarantees and Central Government
Guarantees will be treated on par with tangible security.

(iv) Restructured Accounts

A restructured account is one where the bank, for economic or legal reasons relating to
the borrower's financial difficulty, grants to the borrower concessions that the bank
would not otherwise consider. Restructuring would normally involve modification of
terms of the advances / securities, which would generally include, among others,
alteration of repayment period / repayable amount/ the amount of instalments / rate of
interest (due to reasons other than competitive reasons). However, extension in
repayment tenor of a floating rate loan on reset of interest rate, so as to keep the EMI
unchanged provided it is applied to a class of accounts uniformly will not render the
account to be classified as ‘Restructured account’. In other words, extension or
deferment of EMIs to individual borrowers as against to an entire class, would render
the accounts to be classified as 'restructured accounts.
(v) Repeatedly Restructured Accounts

When a bank restructures an account a second (or more) time(s), the account will be
considered as a 'repeatedly restructured account'. However, if the second restructuring
takes place after the period upto which the concessions were extended under the terms
of the first restructuring, that account shall not be reckoned as a 'repeatedly
restructured account'.

(vi) SMEs

Small and Medium Enterprise (SME) is an undertaking defined in RPCD circulars

RPCD.PLNFS.BC.No.63.06.02/2006-07 dated April 4, 2007 amended from time to time.

(vii) Specified Period

Specified Period means a period of one year from the date when the first payment of
interest or installment of principal falls due under the terms of restructuring package.

(viii) Satisfactory Performance

Satisfactory performance during the specified period means adherence to the following
conditions during that period.

Non-Agricultural Cash Credit Accounts

In the case of non-agricultural cash credit accounts, the account should not be out of
order any time during the specified period, for a duration of more than 90 days. In
addition, there should not be any overdues at the end of the specified period.

Non-Agricultural Term Loan Accounts

In the case of non-agricultural term loan accounts, no payment should remain overdue
for a period of more than 90 days. In addition there should not be any overdues at the
end of the specified period.

All Agricultural Accounts

In the case of agricultural accounts, at the end of the specified period the account
should be regular.
 Annex - 4

Particulars of Accounts Restructured

Amt. (Rs. in crore)

CDR SME Debt

Others
Mechanism Restructuring
Standard No. of
advances Borrowers
restructured Amount
outstanding
Sacrifice
(diminution in
the fair value)

Sub standard No. of

advances Borrowers
restructured Amount
outstanding

Sacrifice
(diminution in
the fair value)
Doubtful No. of
advances Borrowers
restructured Amount
outstanding
Sacrifice
(diminution in
the fair value)

TOTAL No. of
Borrowers
Amount
outstanding

Sacrifice
(diminution in
 Annex - 5

Asset Classification of Restructured Accounts under the Guidelines

Asset Classification of Restructured Accounts under the Guidelines

Particulars Case 1 Case 2 Case 3 Case 4
I Assumed due 31.01.2007 31.01.2007
date of payment
Assumed date of 31.03.2007 31.03.2007 31.03.2007 31.03.2007
restructuring

Period of 2 months 2 months 18 months 18 months

delinquency as on
the date of
restructuring
Asset Classification 'Standard' 'Standard' 'Doubtful - 'Doubtful -
(AC) before less than less than
restructuring one year' one year'
Date of NPA NA NA 31.12.05 31.12.05
(Assumed) (Assumed)

II Asset classification (AC) on restructuring

Assumed status of Eligible for Not eligible Eligible for Not eligible
the borrower special for special special for special
regulatory regulatory regulatory regulatory
treatment treatment treatment treatment

AC after 'Standard' Downgraded 'Doubtful - 'Doubtful -

restructuring to less than less than
'Substandard' one year' one year'
w.e.f 31.03.07
(i.e., on the
date of
restructuring)
Assumed first 31.12.07 31.12.07 31.12.07 31.12.07
payment due under
the revised terms
III Asset classification after restructuring

A The account performs satisfactorily as per restructured terms

(a) AC during the No change 'Doubtful - less No change 'Doubtful -
specified one (i.e., remains than one year' (i.e., one to three
year period 'Standard') w.e.f. 31.03.08 remains years' w.e.f.
(i.e., from (i.e. one year 'Doubtful - 31.12.07 (i.e.,
31.12.07 to after less than one year after
31.12.08) classification as one year') classification
'Substandard') as 'Doubtful
less than one
year')

(b) AC after the Continues in Upgraded to Upgraded Upgraded to

specified one 'Standard' 'Standard' to 'Standard'
year period category category 'Standard' category
category

B If performance not satisfactory vis-à-vis restructured terms

(a) AC during the Treated as 'Doubtful - less 'Doubtful 'Doubtful -

specified one substandard than one year' one to three one to three
year period (in w.e.f w.e.f. 31.03.08 years' w.e.f. years' w.e.f.
case the 30.4.2007 (i.e. one year 31.12.07 31.12.07 (i.e.,
unsatisfactory and after one year after
performance is downgraded classification classification
established to 'Doubtful as 'Doubtful
before less than one less than one
completion of year' with year' (on
one year effect from 31.12.06)
period) 30.04.08.

(b) AC after the Will migrate Will migrate to Will migrate Will migrate
specified one to 'Doubtful - 'Doubtful - one to 'Doubtful further to
year period, if one to three to three years' - more than 'Doubtful
the years' w.e.f. w.e.f. 31.03.09 three years' more than
unsatisfactory 30.04.09 and and 'Doubtful w.e.f. three years'
performance 'Doubtful more than 31.12.09 w.e.f.
continues more than three years' 31.12.09
three years' w.e.f.
w.e.f. 31.03.2011.
30.04.2011.
 Annex-6

Special Regulatory Relaxations for Restructuring (Available upto June 30, 2009)

Since the spillover effects of the global downturn had also started affecting the Indian
economy particularly from September 2008 onwards creating stress for the otherwise viable
units / activities, certain modifications were made in the guidelines on restructuring i.e
RBI/2008-09/143 DBOD.No.BP.BC.No.37/21.04.132/2008-09 dated August 27, 2008 as a
onetime measure and for a limited period of time i.e. up to June 30, 2009 vide our circular
RBI/2008-09/311.DBOD.BP.BC.93/21.04.132/2008-09 dated December 8, 2008, RBI/2008-
09/340.DBOD.BP.BC.104/21.04.132/2008-09 dated January 2, 2009, RBI/2008-
09/370.DBOD.BP.BC.105/21.04.132/2008-09 dated February 4, 2009 and RBI/ 2008-09
/435 DBOD. No. BP. BC.No.124 /21.04.132 /2008-09 April 17, 2009. These circular will
cease to operate from July 1, 2009. These guidelines are as below:

i) In terms of para 6.1 of the circular RBI/ 2008-09 /143 .DBOD. No. BP.BC
.No.37/21.04.132 /2008-09 dated August 27, 2008, exposures to commercial real estate,
capital market exposures and personal / consumer loans are not eligible for the exceptional
regulatory treatment of retaining the asset classification of the restructured standard
accounts in standard category as given in para 6.2 of the circular. As the real estate sector
is facing difficulties, it has been decided to extend exceptions / special treatment to the
commercial real estate exposures which are restructured up to June 30, 2009.

(ii) In terms of para 6.2.2(vi) of the aforesaid circular, the special regulatory treatment is
restricted only to the cases where the restructuring under consideration is not a 'repeated
restructuring as defined in para (v) of Annex 2 to the circular. In the face of the current
economic downturn, there are likely to be instances of even viable units facing temporary
cash flow problems. To address this problem, it has been decided, as a one-time measure,
that the second restructuring done by banks of exposures (other than exposures to
commercial real estate, capital market exposures and personal / consumer loans) upto June
30, 2009, will also be eligible for exceptional / special regulatory treatment

(iii) All accounts covered under the circular dated December 8, 2008 which were standard
accounts on September 1, 2008 would be treated as standard accounts on restructuring
provided the restructuring is taken up on or before March 31, 2009 and the restructuring
package is put in place within a period of 120 days from the date of taking up the
restructuring package.
(iv) The period for implementing the restructuring package would stand extended from 90
days to 120 days in respect of accounts covered under the circular dated August 27, 2008
also.

(v) The value of security is relevant to determine the likely losses which a bank might
suffer on the exposure should the default take place. This aspect assumes greater
importance in the case of restructured loans. However, owing to the current downturn, the
full security cover for the WCTL created by conversion of the irregular portion of principal
dues over the drawing power, may not be available due to fall in the prices of security such
as inventories. In view of the extraordinary situation, this special regulatory treatment will
also be available to 'standard' and 'sub-standard accounts', covered under circulars dated
August 27, 2008 and December 8, 2008 even where full security cover for WCTL is not
available, subject to the condition that provisions are made against the unsecured portion of
the WCTL, as under :

* Standard Assets : 20%.

* Sub-standard Assets : 20% during the first year and to be increased by 20%
every year thereafter until the specified period (one year after the first
payment is due under the terms of restructuring).

* If the account is not eligible for upgradation after the specified period, the
unsecured portion will attract provision of 100%.

These provisions would be in addition to the usual provisions as per the current regulation.

(vi) In this connection, we advise that in terms of Para 3.1.2 of the circular dated August
27, 2008, during the pendency of the application for restructuring of the advance, the usual
asset classification norms continue to apply. The process of reclassification of an asset
should not stop merely because the application is under consideration. However, as an
incentive for quick implementation of the package, if the approved package is implemented
by the bank as per the following time schedule, the asset classification status may be
restored to the position which existed when the reference was made to the CDR Cell in
respect of cases covered under the CDR Mechanism or when the restructuring application
was received by the bank in non-CDR cases :

(i) Within 120 days from the date of approval under the CDR Mechanism.

(ii) Within 90 days from the date of receipt of application by the bank in cases other
than those restructured under the CDR Mechanism.
(vii) It is further clarified that the cases where the accounts were standard as on
September 1, 2008 but slipped to NPA category before 31st March 2009, these can be
reported as standard as on March 31, 2009 only if the restructuring package is implemented
before 31st March 2009 and all conditions prescribed in para 6.2.2 of the circular dated
August 27, 2008 (as amended till date) are also complied with. All those accounts in case of
which the packages are in process or have been approved but are yet to be implemented
fully will have to be reported as NPA as on March 31, 2009 if they have turned NPA in the
normal course. However, in any regulatory reporting made by the bank after the date of
implementation of the package within the prescribed period, these accounts can be reported
as standard assets with retrospective effect from the date when the reference was made to
the CDR Cell in respect of cases covered under the CDR Mechanism or when the
restructuring application was received by the bank in non-CDR cases. In this regard, it may
be clarified that reporting with retrospective effect does not mean reopening the balance
sheet which is already finalised; what it means is that in all subsequent reporting, the
account will be reported as standard and any provisions made because of its interim
slippage to NPA can be reversed.

viii)The circular dated November 14, 2008 extend special regulatory treatment for asset
classification to seven projects (listed below) where the commencement of
production/operation had already been considerably delayed. The banks were advised that
they may undertake a fresh financial viability study of these projects in order to assess their
eligibility for restructuring. In case the projects are found eligible for restructuring and the
banks concerned chose to undertake their restructuring, it has been decided, as a one-time
measure, having regard to the current market developments, that the aforesaid seven
projects under implementation, upon restructuring as per our aforesaid circular dated
August 27, 2008, would be categorised in 'standard' category even if the account was NPA
at the time of such restructuring provided such restructuring package is implemented within
a period of six months from the date of this circular. All other extant norms relating to IRAC
and restructuring of advances remain unchanged. These seven projects are:
1) Nandi Economic Corridor Enterprises Ltd., (Road Project and Township)
2) GVK Industries Ltd., (Gas-based Power Project - Phase -II)
3) Gautami Power Ltd. (Gas-based Power Project)
4) Konaseema Gas Power Ltd., (Gas-based Power Project)
5) New Tirupur Area Development Corporation, (Development of Tirupur Area)
6) Vemagiri Power Generation Ltd., (Gas-based Power Project)
7) Delhi Gurgaon Super Connectivity Ltd.
(ix) In addition to the disclosures required in terms of our circular dated August 27, 2008,
banks may also disclose the information in the balance sheet as detailed below:

Additional Disclosures regarding Restructured Accounts

S. Amount (in
Disclosures Number
No Crore of Rs.)

1. Application received up to March 31, 2009 for restructuring

in respect of accounts which were standard as on
September 1, 2008.

2. Of (1), proposals approved and implemented as on March

31, 2009 and thus became eligible for special regulatory
treatment and classified as standard assets as on the date
of the balance sheet.

3. Of (1), proposals approved and implemented as on March

31, 2009 but could not be upgraded to the standard
category.

4. Of (1), proposals under process / implementation which

were standard as on March 31, 2009.

5. Of (1), proposals under process / implementation which

turned NPA as on March 31, 2009 but are expected to be
classified as standard assets on full implementation of the
package.
 Annex - 7
(Cf. para 2 of the covering letter to the circular)

List of Circulars consolidated by the Master Circular on IRAC Norms

Para No. of
Sl.
Circular No. Date Subject the MC
No.

Agricultural Debt Waiver 21.2

and Debt Relief Scheme,
DBOD.No.BP.BC.140/21.04.
1. 25.06.2009 2008 - Prudential Norms
048/2008-09
on IRAC, Provisioning and
Capital Adequacy
2. DBOD.No.BP.BC.125/21.04. Prudential Norms on 5.4(iii)
17.04.2009
048/2008-09 Unsecured Advances
3. DBOD.No.BP.BC.No.124/21. Prudential Guidelines on Annex 2
17.04.2009
04.132/2008-09 Restructuring of Advances
4. DBOD.No.BP.BC.122/21.04. 09/04/2009 Prudential Treatment in 5.6.3
048/2008-09 respect of Floating
Provisions
5. DBOD.BP.BC.121/21.04.132 Prudential guidelines on 11.4.2
09.04.2009
/2008-09 Restructuring of Advances
6. DBOD.No.BP.BC.112/21.04. Agricultural Debt Waiver 21.2
048/2008-09 and Debt Relief Scheme,
05.03.2009 2008 - Prudential Norms
on IRAC, Provisioning and
Capital Adequacy
7. DBOD.No.BP.BC.118/21.04. 25/03/2009 Prudential Treatment of
048/2008-09 different Types of 5.6.3, 5.7,
Provisions in respect of 5.9.9, 5.9.10
Loan Portfolios
8. DBOD.BP.BC.105/21.04.132 04.02.2009 Prudential guidelines on Annex 6
/2008-09 Restructuring of Advances
9. DBOD.BP.BC.104/21.04.132 02.01.2009 Prudential guidelines on Annex 6
/2008-09 Restructuring of Advances.
10. DBOD.BP.BC.93/21.04.132/ 08.12.2008 Prudential guidelines on Annex 6
2008-09 Restructuring of Advances
11. DBOD.BP.BC.83/21.01.002/ 15/11/2008 Review of Prudential 5.5
2008-09 Norms - Provisioning for
Standard Assets and Risk
Weights for Exposures to
Corporates, Commercial
Real Estate and NBFC-
ND-SI
12. DBOD.No.BP.BC.84/21.04.0 14/11/2008 Asset Classification Norms 4.2.15,
48/2008-09 for Infrastructure Projects Annex 6
under Implementation

13. DBOD.No.BP.BC.78/21.04. 11.11.2008 Agricultural Debt Waiver 21.1

048/2008-09 and Debt Relief Scheme,
2008 - Prudential Norms
on IRAC, Provisioning and
Capital Adequacy
14. DBOD.BP.BC.76/21.04.132/ 03.11.2008 Prudential guidelines on 14.2.2
2008-09 Restructuring of Advances
15. DBOD.BP.BC.No.69/21.03.0 29/10/2008 Prudential Norms for Off- 4.2.7 (iv)
09/2008-09 Balance Sheet Exposures
of Banks
16. DBOD.BP.BC.58/21.04.048/ 13.10.2008 (i) Disbursal of Loans Annex 2
2008-09 against Sanctioned Limits
(ii) Restructuring of Dues
of the Small and Medium
Enterprises (SMEs)
17. DBOD.No.BP.BC.57/21.04.1 13/10/2008 Prudential Norms for Off- 2.1.2 (vii),
57/2008-09 balance Sheet Exposures 4.2.7 (iv) to
of Banks 4.2.7 (vii)

18. DBOD.No.BP.BC.48/21.04.0 22/09/2008 Prudential Norms on 5.6.2

48/2008-09 Utilisation of Floating
Provisions - Agricultural
Debt Waiver and Debt
Relief Scheme, 2008
19. DBOD.BP.BC.37/21.04.132/ 27.08.2008 Prudential guidelines on Para 9 to 18
2008-09 Restructuring of Advances-
comprehensive guidelines
20. DBOD.No.BP.BC.31/21.04.1 08/08/2008 Prudential Norms for Off- 2.1.2 (vii),
57/2008-09 balance Sheet Exposures 5.9.12
of Banks
21. DBOD.No.BP.BC.26/21.04. 30.07.2008 Agricultural Debt Waiver 20
048/2008-09 and Debt Relief Scheme,
2008 - Prudential Norms
on IRAC, Provisioning and
Capital Adequacy
22.
DBOD.BP.BC.82/21.04.048/ 08.05.2008 Prudential Norms on Asset 4.2.15 (iv)
2007-08 Classification Pertaining to
Advances -
Infrastructure Projects
under Implementation and
Involving Time Overrun

23. 04.10.2007 Guidelines on Purchase / 7.5 (iii)

DBOD.No.BP.BC.34/21.04.0
Sale of Non Performing
48/2007-08
Assets

24. DBOD.No.BP.BC.97/21.04.0 16.05.2007 Guidelines on Purchase / 7.5 (iii)

48/2006-07 Sale of Non Performing
Assets

25. DBOD.No.BP.BC.76/21.04.0 12.04.2007 Prudential Norms on 4.2.15 (iv)

48/2006-07 Income Recognition, Asset
Classification and
Provisioning Pertaining to
Advances - Projects
Involving Time Overrun
26. DBOD.No.BP.BC.68/21.04.0 13.03.2007 Prudential Norms on 5.6.2
48/2006-07 Creation and Utilisation of
Floating Provisions
27. DBOD.No.BP.BC.53/21.04.0 31.01.2007 Third Quarter Review of 5.5 (i)
48/2006-2007 the Annual Statement on
Monetary Policy for the
year 2006-07 -
Provisioning Requirement
for Standard Assets and
Risk Weights for Capital
Adequacy

28. DBOD.No.BP.BC.21/21.04.0 12.07.2006 Annual Policy Statement 5.5 (i)

48/2006-2007 for the year 2006-07 -
Additional Provisioning
Requirement for Standard
Assets
29. DBOD.NO.BP.BC.89/ 22.06.2006 Prudential norms on 5.6
21.04.048/ 2005-06 creation and utilization of
floating provisions
30. DBOD.NO.BP.BC.85/ 29.05.2006 Annual Policy Statement 5.5(i)
21.04.048/ 2005-06 for the year 2006-07:
Additional Provisioning
Requirement for Standard
Assets
31. DBOD.NO.BP.BC.45 10.11.2005 Revised Guidelines on Part B
/21.0421.04.048/2005 -06 Corporate Debt
Restructuring(CDR)
Mechanism
32. DBOD.NO.BP.BC.46 10.11.2005 Debt restructuring Part B
/21.0421.04.048/2005-06 mechanism for Small and
Medium Enterprises
(SMEs)
33. DBOD.NO.BP.BC.40/ 04.11.2005 MidTerm Review of Annual 5.5(i)
21.04.048/ 2005-06 Policy Statement for the
year 200506: Additional
Provisioning Requirement
for Standard Assets
34. DBOD.NO.BP.BC. 34 08.09.2005 Debt restructuring Part B
/21.04.132/2005-06 mechanism for Small and
Medium
Enterprises (SMEs) -
Announcement made
by the Union Finance
Minister
35. DBOD.NO.BP.BC.16/ 13.07.2005 Guidelines on 7
21.04.048/ 2005-06 purchase/sale of Non
performing Assets
36. DBOD.BP.BC.34/21.0 26.08.2004 Repayment schedule of 4.2.13(vi)
4.048/2004-05 rural housing loans

37. DBOD.BP.BC.29/21.04.048/ 13.08.2004 Prudential norms – 4.2.14

2004-05 State Government
guaranteed exposures
38. 24.06.2004 Flow of credit to 4.2.13 (iv)
RPCD No. Plan.BC
Agriculture
92/04.09.01/2003-04

39. 2.1.2(iv),
24.06.2004 Prudential Norms for
(v)
DBOD No. BP.BC
Agricultural Advances 4.2.10,
102/21.04.048/2003-04
4.2.13(i)

40. 21.06.2004 Additional Provisioning 5

DBOD No. BP.BC
Requirement for NPAs
99/21.04.048/2003-04

41. DBOD No. BP.BC 17.06.2004 Prudential Guidelines on 5.4

97/21.04.141/2003-04 Unsecured Exposures

42. 17.06.2004 Country Risk 5.9.8

DBOD No. BP.BC
Management Guidelines
96/21.04.103/2003-04

43. 23.04.2003 Guidelines on sale of 6

financial assets to
DBOD No. BP.BC
Securitisation /
96/21.04.048/2002-03
reconstruction company
and related issues
44. 27.02.2003 Projects under 4.2.15
DBOD BP.BC. NO.
implementation
74/21.04.048/2002-2003
involving time overrun
45. DBOD No. BP.BC. 19.02.2003 Risk Management 5.9.8
71/21.04.103/2002-2003 Systems in Banks –
Guidelines on Country
Risk Management
46. 10.02.2003 4.2.5
Upgradation of loan
DBOD BP.BC. No.
accounts classified as
69/21.04.048/2002-03
NPAs

47. 30.11.2002 Agricultural loans 4.2.13

DBOD. BP.BC No.
affected by natural
44/21.04.048/2002-03
calamities
48. DBOD No.BP.BC. 108/ 28.05.2002 Income recognition, asset 4.2.15
21.04.048/2001-2002 classification and
provisioning on advances -
treatment of
projects under
implementation involving
time overrun
49. DBOD No.BP.BC. 101/ 09.05.2002 Corporate Debt Part B
21.01.002/ 2001-02 Restructuring
50. DBOD No.BP.BC. 100/ 09.05.2002 Prudential norms on asset 4.1.2
21.01.002/ 2001-02 classification
51. DBOD No.BP.BC. 59/ 22.01.2002 Prudential norms on 4.2.13
21.04.048/2001-2002 income recognition, asset
classification and
Provisioning agricultural
advances
52. DBOD No.BP.BC. 25/ 11.09.2001 Prudential norms on 3
21.04.048/2000-2001 income recognition, asset
classification and
provisioning

53. DBOD No.BP.BC. 15 / 23.08.2001 Corporate Debt Part B

21.04.114/2000-2001 Restructuring
54. DBOD No.BP.BC. 132/ 14.06.2001 Income Recognition, Asset 4.2
21.04.048/2000-2001 Classification and
Provisioning for Advances

55. DBOD No. BP.BC. 128/ 07.06.2001 SSI Advances Guaranteed 5.9.5
21.04.048/2000-2001 by CGTSI – Riskweight
and provisioning norms

56. 02.05.2001 Monetary & Credit 2.1.2

DBOD No. BP. BC. 116 Policy Measures
/21.04.048/ 2000-2001 2001-02

57. DBOD No. BP. BC. 98/ 30.03.2001 Treatment of Restructured Part B
21.04.048/ 2000-2001 Accounts

58. DBOD No. BP. BC. 40 / 30.10.2000 Income Recognition, Asset 3.5
21.04.048/ 2000-2001 Classification and
Provisioning Reporting of
NPAs to RBI

59. DBOD.No.BP.BC.161/21.04. 24.04.2000 Prudential Norms on 5.5

0 48/ 2000 Capital Adequacy, Income
Recognition, Asset
Classification and
Provisioning, etc.

60. DBOD.No.BP.BC.144/21.04. 29.02.2000 Income Recognition, Asset 4.2.16

0 48/ 2000 Classification and
Provisioning and Other
Related Matters and
Adequacy Standards -
Takeout Finance

61. DBOD.No.BP.BC.138/21.04. 07.02.2000 Income Recognition, Asset 4.2.18

0 48/ 2000 Classification and
Provisioning Export Project
Finance
62. DBOD.No.BP.BC.103/21.04. 21.10.99 Income Recognition, Asset 4.2.10
0 48/ 99 Classification and
Provisioning Agricultural
Finance by Commercial
Banks through Primary
Agricultural Credit
Societies
63. DBOD.No.FSC.BC.70/24.01. 17.07.99 Equipment Leasing 3.2.3, 5.8
001/ 99 Activity Accounting/
Provisioning Norms
64. DBOD.No.BP.BC.45/21.04.0 10.05.99 Income Recognition Asset 4.2.15
4 8/99 Classification and
Provisioning Concept of
Commencement of
Commercial Production

65. DBOD.No.BP.BC.120/21.04. 29.12.98 Prudential norms on 4.2.13

0 48/ 98 Income Recognition, Asset
Classification and
Provisioning Agricultural
Loans Affected by Natural
Calamities
66. DBOD.No.BP.BC.103/21.01. 31.10.98 Monetary & Credit 4.1.1, 4.1.2,
0 02/ 98 Policy Measures 5.5
67. DBOD.No.BP.BC.17/21.04.0 04.03.98 Prudential Norms on 4.2.13
4 8/98 Income Recognition, Asset
Classification and
Provisioning Agricultural
Advances
68. DOS. No. CO.PP. BC.6/ Assessments relating to
15.05.97 5.1.1
11.01.005/ 9697 asset
valuation and loan
loss provisioning
69. DBOD.No.BP.BC.29/21.04.0 09.04.97 Income Recognition Asset 4.2.13
4 8/97 Classification and
Provisioning Agricultural
Advances
70. DBOD.No.BP.BC.14/21.04.0 19.02.97 Income Recognition Asset 4.2.13
48/97 Classification and
Provisioning Agricultural
Advances
71. DBOD.No.BP.BC.9/21.04.04 29.01.97 Prudential Norms Capital 4.2.4, 4.2.5,
8 /97 Adequacy, Income 4.2.8, 4.2.9
Recognition Asset
Classification and
Provisioning
72. 24.12.96 Classification of 4.1
DBOD.No.BP.BC.163/21.04. Advances with Balance
0 48/ 96 less than Rs. 25,000/

73. 04.06.96 Income Recognition

4.2.8
DBOD.No.BP.BC.65/21.04.0 Asset Classification and
48/96 Provisioning

74. DBOD.No.BP.BC.26/21.04.0 19.03.96 Nonperforming 3.5

48/96 Advances Reporting to RBI

75. DBOD.No.BP.BC.25/21.04.0 19.03.96 Income Recognition 4.2.8, 4.2.14

48/96 Asset Classification and
Provisioning
76. DBOD.No.BP.BC.134/21.04. 20.11.95 EXIM Bank's New Lending 4.2.17
0 48/ 95 Programme Extension of
Guarantee cum Refinance
to Commercial Bank in
respect of Post shipment
Supplier's Credit

77. 03.04.95 Income Recognition 3.2.2, 3.3,

DBOD.No.BP.BC.36/21.04.0
Asset Classification and 4.2.17
48/95
Provisioning 5.8.1
78. DBOD.No.BP.BC.134/21.04. 14.11.94 Income Recognition 5
0 48/ 94 Asset Classification
Provisioning and Other
Related Matters
79. 16.05.94 Income Recognition Asset 5
Classification and
80. DBOD.No.BP.BC.58/21.04.0
Provisioning and Capital
4 894
Adequacy Norms -
Clarifications
81. DBOD.No.BP.BC.50/21.04.0 30.04.94 Income Recognition 5.9.4
48/94 Asset Classification and
Provisioning
82. DOS.BC.4/16.14.001/9394 19.03.94 Credit Monitoring System - 1.3
Health Code System for
Borrowal Accounts
83. DBOD.No.BP.BC.8/21.04.04 04.02.94 Income Recognition, 3.1.2, 3.4,
3 /94 Provisioning and Other 4.2
Related Matters

84. DBOD.No.BP.BC.195/21.04. 24.11.93 Income Recognition, Asset 4.2

0 48/ 93 Classification and
Provisioning Clarifications
85. 23.03.93 Income Recognition, 3.2, 5
DBOD.No.BP.BC.95/21.04.0 Asset Classification,
48/93 Provisioning and Other
Related Matters

86. DBOD.No.BP.BC.59/21.04.0 17.12.92 Income Recognition, Asset 3.2.1, 3.2.2,

4 392 Classification and 4.2
Provisioning Clarifications

87. 27.04.92 Income Recognition, Asset 1.1, 1.2,

Classification, 2.1.1, 2.2,
Provisioning and Other 3.1.1,3.1.3,
DBOD.No.BP.BC.129/21.04.
Related Matters 4.1, 4.1.1,
0 4392
4.1.2, 4.1.3,
4.2, 5.1, 5.2,
5.3, 5.4
88. DBOD.No.BP.BC.42/C.469 31.10.90 Classification of Non 3.1.1
(W)90 Performing Loans
89. DBOD.No.Fol.BC.136/C.249 07.11.85 Credit Monitoring System - 1.3
85 Introduction of Health
Code for Borrowal
Accounts in Banks
90. DBOD.No.BP.BC.35/21.01.0 Monetary & Credit
24.04.99 4.2
02/99 Policy Measures

91. Equipment Leasing,

DBOD.No.FSC.BC.18/24.01. 19.02.94 2.1, 3.2.3
Hire Purchase,
001/ 9394
Factoring, etc. Activities