RBI/2008-09/435
DBOD.No.BP.BC.No.124/21.04.132/2008-09
April 17, 2009
The Chairman and Managing Directors/
Chief Executive Officers of
All Scheduled Commercial Banks
(excluding RRBs & LABs)
Dear Sir,
Prudential guidelines on restructuring of advances
Please refer to our circular DBOD.No.BP.BC.No.37/ 21.04.132/2008-09 dated August
27, 2008 and subsequent circulars on the captioned subject. Queries have been
raised whether in terms of the above circulars mere receipt of an application
for restructuring of an advance will entitle a bank to classify it as standard
asset, if the account was standard as on September 1, 2008 and had turned NPA
subsequently.
- 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.
- Since the spill over effects of the global downturn had started affecting the
Indian economy, particularly from September 2008 onwards, creating stress for
the otherwise viable units / activities, certain modifications were made to the
provisions of the circular dated August 27, 2008, by circulars dated January 2,
2009 and February 4, 2009. The modifications provided that accounts 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. This modification means that
the incentive for quick implementation as envisaged in terms of para 6.2.1 of
the circular dated August 27, 2008 is available even in those cases where the
accounts were standard as on September 1, 2008 but had turned NPA as on the date
of receipt of application for restructuring by banks or as on date when
reference was made to the CDR Cell, as the case may be. However, this
modification appears to have been interpreted by some banks to mean that the
account will not slip to NPA category just because an application for
restructuring is received, which is not the correct position.
- In this connection, 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.
- The circulars dated December 8, 2008, January 2, 2009 and February 4, 2009
will cease to operate from July 1, 2009. Thereafter, restructuring of all
accounts will be governed only by the provisions of circulars dated August 27,
2008, November 3, 2008 and April 9, 2009.
- 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 in Annex.
Yours faithfully,
(Prashant Saran)
Chief General Manager-in-Charge
Annex
Additional disclosures regarding restructured accounts
| S.No |
Disclosures |
Number
|
Amount (in 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. |
|
|
|