RBI 2008-09/279
DBOD.No.BP.BC. 79 /21.04.048/2008-09

November 11, 2008

The Chairman / CMD / MD / CEO
All Scheduled Commercial Banks (including Local Area Banks)
(Excluding RRBs)

Dear Sir

Union Budget 2008-09 – Agricultural Debt Waiver and Debt Relief Scheme, 2008 – Prudential Norms on Income Recognition, Asset Classification, Provisioning and Capital Adequacy

Please refer to our circular DBOD.No.BP.BC. 26/21.04.048/2008-09 dated July 30 2008, on the captioned subject.

2. In this regard, we advise that under the captioned scheme, the Government of India has since 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.
   
   
3. In view of the above, in supersession of the instructions contained in paragraphs 2.2 to 2.7, 3.2 (a), and 3.4 to 3.8 of the aforesaid circular, 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. All other conditions in the aforesaid circular remain unchanged.

Yours faithfully
(Prashant Saran)
Chief General Manager-in- Charge

Annex

1. The provisions held by the banks on PV basis and the excess provisions, if any, can not be treated as General provisions and have to be treated as asset specific provisions just like the provisions for NPAs.
   
   
2. The provisions held by the banks on PV basis and the excess provisions, if any, in respect of the amount receivable from the Government of India, may be netted against the relative advances as also from the Gross NPAs, and the net amount receivable from the GOI should be shown as part of the “advances” in Schedule 9 of the balance sheet.
   
   
3. The provisions made on PV basis and the excess provisions, if any, would not be eligible for inclusion in Tier II capital. However, the provisions made for “standard” classification of the amount receivable from the GOI (in case of Debt Relief), should not be netted off from advances but would be reckoned as part of the Tier II capital of the banks , within the extant ceiling of 1.25 percent of the risk weighted assets.
   
   
4. The provisions on PV basis are required to be made in respect of all the instalments receivable from the Government of India - including the first instalment - even though the amount receivable is classified as standard.
   
   
5. The cash flows should be discounted with effect from June 30, 2008, being the date when the Debt waiver / Debt Relief scheme came into effect.
   
   
6. The banks may make the provisions on PV basis, if they so desire, in three equal instalments over the three quarters ending September 30, 2008, December 31, 2008, and March 31, 2008. The amount of provisioning however would remain unchanged.
   
   
7. For the accounts covered under the Debt Relief Scheme, the provision on PV basis is required to be made, even if the account is in standard category, in respect of the entire “eligible amount” under the Debt Relief scheme, which is yet to be received by the banks (both from the borrower as well as from the GOI), excluding the amount that might have already been paid/ pre-paid by the farmers. For the accounts where the farmers have paid their contribution of 75% of the eligible amount upfront in full, the provision on PV basis shall be made only for the balance of 25% of the eligible amount receivable from the Government of India.