RBI- Enhancement of Rates of Provisioning for Non-Performing Assests and Restructured Advances

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).

1. 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.

2. 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%.

3. Restructured Advances:

1. 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
2. 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 upgradation (as against existing provision of 0.25-1.00 per cent, depending upon the category of advances).

4. 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 Unsecured Exposures Unsecured Exposures in respect of Infrastructure loan accounts where certain safeguards such as escrow accounts are available. 10 20 15 15 25 20 Doubtful Advances – Unsecured Portion 100 100 Doubtful Advances – Secured Portion For Doubtful upto 1 year For Doubtful > 1 year and upto 3 years For Doubtful > 3 years 20 30 100 25 40 100 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

110. 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 upto 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 upgradation (as against existing provision of 0.25-1.00 per cent, depending upon the category of advances).

111. Detailed guidelines in this regard will be issued separately.

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