RBI 2010-11/529
DBOD.No.BP.BC. 94/21.04.048/2011-12
May 18, 2011
The Chairman and Managing Directors / Chief Executive Officers
All Scheduled Commercial Banks (Excluding RRBs)
Dear Sir/ Madam
Enhancement of Rates of Provisioning for Non-Performing Assets and
Restructured Advances
Please refer to paragraph 110 of the Monetary Policy Statement for the year
2011-12 (extract enclosed) wherein it was proposed to enhance the provisioning
requirements on certain categories of non-performing advances and restructured
advances. Accordingly, the revised provisioning requirements for the following
categories of non-performing advances and restructured advances will be as
under: (the current provisioning requirements are laid down in paragraph 5 of
the Master Circular on Prudential Norms on Income Recognition, Asset
Classification and Provisioning pertaining to Advances - Ref
DBOD.No.BP.BC.21/21.04.048/2010-11 dated July 01, 2010).
- Sub-Standard Advances :
Advances classified as “sub-standard” will attract a provision of 15 per cent as
against the existing 10 per cent. The “unsecured exposures” classified as
sub-standard assets will attract an additional provision of 10 per cent, i.e., a
total of 25 per cent as against the existing 20 per cent. However, “unsecured
exposures” in respect of Infrastructure loan accounts classified as
sub-standard, in case of which certain safeguards such as escrow accounts are
available as indicated in our circular
DBOD.No.BP.BC.96/08.12.014/2009-10 dated
April 23, 2010, will attract an additional provision of 5 per cent only i.e. a
total of 20 per cent as against the existing 15 per cent.
- Doubtful Advances :
Doubtful Advances will continue to attract 100% provision to the extent the
advance is not covered by the realisable value of the security to which the bank
has a valid recourse and the realisable value is estimated on a realistic basis.
However, in respect of the secured portion, following provisioning requirements
will be applicable:
- The secured portion of advances which have remained in “doubtful” category up to
one year will attract a provision of 25 per cent (as against the existing 20 per
cent);
- The secured portion of advances which have remained in “doubtful” category for
more than one year but upto 3 years will attract a provision of 40 per cent (as
against the existing 30 per cent); and
- The secured portion of advances which have remained in “doubtful” category for
more than 3 years will continue to attract a provision of 100%.
- Restructured Advances:
- Restructured accounts classified as standard advances will attract a provision
of 2 per cent in the first two years from the date of restructuring. In cases of
moratorium on payment of interest/principal after restructuring, such advances
will attract a provision of 2 per cent for the period covering moratorium and
two years thereafter (as against existing provision of 0.25-1.00 per cent,
depending upon the category of advances); and
- Restructured accounts classified as non-performing advances, when upgraded to
standard category will attract a provision of 2 per cent in the first year from
the date of up gradation (as against existing provision of 0.25-1.00 per cent,
depending upon the category of advances).
- All other instructions on provisioning will remain unchanged. The revised
provisioning norms vis-à-vis the existing norms are also summarized in
Annex.
Yours faithfully
(B. Mahapatra)
Chief General Manager - in – Charge
Encls: As above
Annex
Rates of Provisioning for Non-Performing Assets and Restructured Advances
| Category of Advances |
Existing Rate (%) |
Revised Rate (%) |
| Sub- standard Advances |
| * Secured Exposures |
10 |
15 |
| * Unsecured Exposures |
20 |
25 |
| * Unsecured Exposures in respect of Infrastructure loan accounts
where certain safeguards such as escrow accounts are available.
|
15 |
20 |
| Doubtful Advances – Unsecured Portion |
100 |
100 |
| Doubtful Advances – Secured Portion |
| * For Doubtful upto 1 year |
20 |
25 |
| * For Doubtful > 1 year and upto 3 years |
30 |
40 |
| * For Doubtful > 3 years |
100 |
100 |
| Loss Advances |
100 |
100 |
| Restructured accounts classified as standard advances in the first two years
from the date of restructuring ; and |
| * in cases of moratorium on payment of interest/principal after
restructuring – period covering moratorium and two years thereafter.
|
0.25 to 1.00 (depending upon the category of advance)
|
2 |
| Restructured accounts earlier classified as NPA and later upgraded to standard
category |
| * in the first year from the date of upgradation |
0.25 to 1.00 (depending upon the category of advance)
|
2 |
Extract from the Monetary Policy Statement 2011-12
Enhancement of Rates of Provisioning for Non-Performing Assets
- In pursuance of the announcement made in the
Second Quarter Review of
October 2009, banks were advised in December 2009 to achieve a provisioning
coverage ratio (PCR) of 70 per cent for their non-performing advances by
end-September 2010. This coverage ratio was intended to achieve a
counter-cyclical objective by ensuring that banks build up a good cushion of
provisions to protect them from any macroeconomic shock in future. In April
2011, banks were advised to segregate the surplus of provisions under the PCR vis-a-vis as required as per prudential norms as on September 30, 2010, into an
account styled as “counter-cyclical buffer”. While the “counter-cyclical buffer”
so created would be available to banks for making specific provisions during
economic downturns, there is a need for banks to make higher specific provisions
also as part of the prudential provisioning framework. Accordingly, It is
proposed to enhance the provisioning requirements on certain categories of
non-performing advances and restructured advances as under:
- advances classified as “sub-standard” will attract a provision of 15 per cent as
against the existing 10 per cent (the “unsecured exposures” classified as
sub-standard assets will attract an additional provision of 10 per cent, i.e., a
total of 25 per cent as against the existing 20 per cent);
- the secured portion of advances which have remained in “doubtful” category up to
one year will attract a provision of 25 per cent (as against the existing 20 per
cent);
- the secured portion of advances which have remained in “doubtful” category for
more than one year but up to 3 years will attract a provision of 40 per cent (as
against the existing 30 per cent);
- restructured accounts classified as standard advances will attract a provision
of 2 per cent in the first 2 years from the date of restructuring, or in cases
of moratorium on payment of interest/principal after restructuring, for the
period covering moratorium and 2 years thereafter (as against existing provision
of 0.25-1.00 per cent, depending upon the category of advances); and
- restructured accounts classified as non-performing advances, when upgraded to
standard category will attract a provision of 2 per cent in the first year from
the date of up gradation (as against existing provision of 0.25-1.00 per cent,
depending upon the category of advances).
- Detailed guidelines in this regard will be issued separately.