Non Performing Assets – Prudential Norms
|Category||Treated as NPA if:|
|Term Loan||Interest and/or installment of principal remain overdue for a period of more than 90 days|
|Overdraft/ Cash Credit (OD/CC) accounts||1) The account remains out of order continuously for 90 days.
2) Drawings are allowed on DP calculated on stock statement older than three months continuously for a period of 90 days
3) Limits have not been reviewed/renewed within 180 days from due date of sanction.
|Agricultural Loans||If the installment of principal or interest thereon remains overdue for two crop seasons for short duration crops and one crop season for long duration crop.|
|Bills Purchased / Discounted||Bill remains overdue for a period of more than 90 days.|
|Other a/cs||Any amount to be received remains overdue > 90 days.|
Net NPA=Gross NPA – (provisions held towards NPAs + Balances in Interest Sundry Suspense A/c + part payments received in suit filed accounts and kept in Sundry Suspense.+ claims received from ECGC/CGC and kept in Sundry Suspense a/c).
The policy of income recognition has to be objective and based on the record of recovery. Income from nonperforming assets (NPA) is not recognized on accrual basis but is booked as income only when it is actually received. 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.
Reversal of Income:
If an account becomes NPA for first time during the year the unrealized interest that was taken to P&L account on accrual basis pertaining to the current year as well as pertaining to the preceding year, if any, shall also be reversed. This will apply to Government guaranteed accounts also.
Valuation of Security for provisioning purposes:
In cases of NPAs with balance of Rs.5 crore and above stock audit at annual intervals by external agencies and collaterals such as immovable properties charged in favour of the bank should be got valued once in two years by valuers approved by the Board.
Banks are required to classify non-performing assets further into the following three categories based on the period for which the asset has remained nonperforming and the reliability of the dues:
Substandard Assets: A substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. It indicates credit weakness and scope for loss if deficiencies are not corrected.
Doubtful Assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
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. It is considered as uncollectible and it is not warranted to continue as bankable asset since there is little scope for salvage or recovery value.
Borrower wise classification:
Facilities granted by a bank to a borrower treated as NPA (except bills discounted under LC) if any one facility of the borrower becomes NPA. Uniform lowest classification shall be accorded to all facilities. In case of credit facilities for a borrower at more than branch, the principal branch shall decide the NPA status.
Advances under consortium arrangements:
Asset classification of accounts under consortium should be based on the record of recovery of the individual member banks.
Erosion in the value of security:
Where there are potential threats for recovery on account of erosion in the value of security or non- availability of security, asset should be straightaway classified as doubtful or loss asset as appropriate.
Advances against Term Deposits, NSCs, KVPs, IVPs and LIC policies need not be treated as NPAs. Advances against gold ornaments, government securities and all other securities are not covered by this exemption.
Loans with moratorium for payment of interest: 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.
Government guaranteed advances:
Advances under this category, though overdue may be treated as NPA only when the Government repudiates its guarantee when invoked. However, interest can be recognized only on recovery basis not on accrual basis. State Government guaranteed advances 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.
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, as income recognition is based on record of recovery.
Post-shipment Supplier’s Credit: To the extent Export Credit Guaranteed amount is received from the EXIM Bank, the advance may not be treated as a nonperforming asset for asset classification and provisioning purposes.
|Status||Provision to be made|
|Standard||0.25% on Direct advances to agriculture and SME sectors. 1.00% on Commercial Real Estate
0.40% on all advances other than stated above
|The provisioning norms in respect of new Restructured Standard Accounts are increased from existing 2.75% to 5% in a phased manner i.e. 3.50% by 31st March 2014; 4.25% by 31st March 2015 and 5% by 31st March 2016.|
|Sub-Standard||25% on unsecured exposures (20% in case of infra loans) 15% on other loans|
|Doubtful||Unsecured portion: 100%
Secured portion: if asset remained in doubtful <= 1 year 25%
If asset remained in doubtful – 1 to 3 years 40%
If asset remained in doubtful > 3 year 100%
|Loss||At 100% on the outstanding|
In case of fraud accounts, the banks are required to provide entire amount due to the bank, irrespective of the quantum of security held against such assets, or for which the bank is liable (including in case of deposit accounts) for over a period not exceeding four quarters commencing with the quarter in which the fraud has been detected. However, where there has been delay, beyond the prescribed period, in reporting the fraud to the Reserve Bank, the entire provisioning is required to be made at once. These guidelines are effective from 1st April 2015.
Unsecured Exposure is one where realizable value of tangible security, as assessed by the bank/approved valuers/RBI inspecting officers, is not more than 10 percent, abinitio, of the outstanding exposure (funded and non-funded). However, the following are the exempted categories from provisioning norms:
- Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs and life
- Advances granted under rehabilitation packages approved by BIFR / Term lending
- Advances covered by CGTSI guarantee – No provision need be made towards the guaranteed portion. The outstanding in excess of the guaranteed portion should be provided.
- Advances covered by ECGC /DICGC guarantee – provision should be made only for the balance in excess of the amount guaranteed
Special Mentioned Accounts (SMA):
As per recent guidelines banks are required to submit data on large borrowers having aggregate fund / non fund based exposure of Rs.5 crore and above to RBI.
|1||SMA-0||Principal or Interest payment not overdue for more than 30 days but account showing signs of incipient stress like non submission of mandatory information, frequent cheque returns, reduction of drawing power, non repayment of devolved DPGs / BGs / LCs, Sale of promoter’s stake (shares) etc.|
|2||SMA-1||Principal or Interest payment overdue between 31 to 60 days.|
|3||SMA-2||Principal or Interest payment overdue between 61 to 90 days.|
RBI has set up a Central Repository of Information on Large Credits (CRILC). Banks are required to submit SMA status of the borrowers to CRILC. If an account is slipped in to SMA-2 at any time or SMA-1 for any two quarters or SMA-0 for three quarters in a year, then the bank would be required to initiate corrective action.
W.e.f. 01.04.2015 all restructured accounts will be treated as sub-standard assets and attracts higher provisioning norms.