If loss assets are permitted to remain in the books for any reason, 100% of the outstanding should be provided for.
brought by them should be a minimum of 20% of banks’ sacrifice or 2% of restructured debt whichever is higher. The term bank’s sacrifice’ means the amount of “erosion in the fair value of the advance”. The additional funds required to be brought in by the promoter should be brought up front and not be phased over a period of time.
- Promoter’s contribution need not necessarily be brought in cash and can be brought in the form of de-rating of equity, conversion of unsecured loan brought by the promoter into equity and interest free loans.
- The restructuring under consideration is not a ‘repeated restructuring’
- Promoter’s personal guarantee should be obtained in all cases of restructuring. Corporate guarantee cannot be accepted as a substitute for personal guarantee. However, the same can be accepted in cases where promoters of a company are not individuals.
- Provisioning Norms
- Substandard assets
A general provision of 15% on total outstanding should be made without making any allowance for ECGC guarantee cover and securities available.
The ‘unsecured exposures’ which are identified as ‘substandard’ would attract additional provision of 10%, i.e., a total of 25% on the outstanding balance! However, in view of certain safeguards such as escrow accounts available in respect of infrastructure lending, infrastructure loan accounts which are classified as sub-standard will attract a provisioning of 20% instead of the aforesaid prescription of 25%.
- Doubtful assets
- a) 100% of the extent to which 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 (unsecured portion), b) In regard to the secured portion, provision may be made on the following basis, at the rates ranging from 25% to 100% of the secured portion depending upon the period for which the asset has remained doubtful:
|Period for which the advance has remained in ‘doubtful’ category||Provision requirement (%)|
|Up to 1 year||25|
|1 to 3 years||40|
|More than 3 years||100|
- Loss assets
Loss assets should be written off. If loss assets are permitted to remain in the books for any reason, 100 percent of the outstanding should be provided for.
- Standard assets
- Direct advances to agricultural and SME sectors at 0.25%;
- Advances to Commercial Real Estate (CRE) Sector at 1%;
- Advance to commercial Real Estate – Residential Housing Sector at 0.75%
- Housing loan at teaser rates 2% and 0.40% after 1 year from the date on which the rates are reset at higher rates
- All other loans and advances not included in (a), (b), (c) and (d) above at 0.40%
- Restructured account classified as standard would attract higher provision. Para 18.104.22.168(iv) of Master Circular may be referred for the same.
- Valuation of security for provisioning
- There are specific guidelines in para 5.4(iii) of the Master Circular for consideration of security in respect of infrastructure projects. The same may be referred.
In cases of NPAs with balance of ^ 5 crore and above stock audit at annual intervals by external agencies appointed as per the guidelines approved by the board of the bank would be mandatory. Collaterals such as immovable properties charged in favour of the bank should be got valued once in three years by valuers appointed as per the guidelines approved by the Board of Directors.