RBI/2004/272
UBD.BPD.PCB.Cir. 55/12.05.05/
2003-2004 June
30, 2004 All Primary (Urban) Co-operative banks Dear Sir, Annual
Policy Statement for the year 2004-05:Additional Provisioning Requirement for
NPAs As per our circular UBD.No.IP.30/12.05.05/02-03
dated December 26, 2002 banks are required to make provisions on NPAs on a graded
scale based on the age of the NPA. However, in respect of NPAs included in 'doubtful
for more than three years' category, the provisioning requirement on the secured
portion remains unchanged at 50 per cent, irrespective of its age, till it is
identified as a loss asset. With the enactment of the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002 and the chances
/ extent of recovery of an asset reducing over a period of time, it is essential
that banks expedite recovery of NPAs. 2.
In this connection, please refer to paragraph 122 of the annual
policy Statement for the year 2004-2005 (copy of the paragraph enclosed). Accordingly,
it has been decided to introduce graded higher provisioning according to the age
of NPAs in 'doubtful for more than three years' category, with effect from March
31, 2005. Consequently, the increase in provisioning requirement on the secured
portion would be applied in a phased manner over a three year period in respect
of the existing stock of NPAs classified as 'doubtful more than three years' as
on March 31, 2004. 3. However,
in respect of all advances classified as 'doubtful more than three years' on or
after April 1, 2004, the provisioning requirement would be 100 per cent. Accordingly,
the provisioning norm for advances identified as 'doubtful for more than three
years' will be as under with effect from March 31, 2005 : (a)
Unsecured portion Portion of
the advance, which is not covered by the realisable value of tangible security
to which the bank has a valid recourse and the realisable value is estimated on
a realistic basis, provision will be to the extent of 100 per cent as hitherto. (b)
Secured portion
| Period
for which the advance has remained in 'doubtful' category |
Provision requirement on secured
portion | | More
than three years
(i) outstanding stock of NPAs as on March 31, 2004
(ii)
advances classified as 'doubtful more than three years' on or after April 1, 2004 |
(i) 60 per cent as on March 31, 2005
75 per cent as on March 31, 2006 100 per cent as on March 31, 2007
(ii) 100
per cent |
A
few illustrations are furnished in Annex for clarity in this regard.
4.
Banks are advised to make suitable provisions during the current year to ensure
a smooth transition to the revised norm, which becomes effective from March 31,
2005. Yours faithfully, (N.S.
Viswanathan)
Chief General Manager Encls : 2 sheets
Extract
of Annual Policy Statement for the year 2004-05 "
Provisioning Requirement for NPAs 122. At present,
banks are required to make provisions on NPAs on a graded scale based on the age
of the NPA. However, in respect of ‘doubtful assets for more than three years’,
the provisioning requirement on the secured portion remains unchanged at 50 per
cent, till it is identified as a loss asset. With the enactment of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002 and the chances/extent of recovery of an asset reducing over a period of
time, it is essential that banks expedite recovery of NPAs. Accordingly, it is
proposed: - To introduce graded higher provisioning
requirement according to the age of NPAs, which are included under ‘doubtful for
more than three years’ category, with effect from March 31, 2005. "
Illustrations
: I. Existing stock of advances classified as 'doubtful more than 3 years'
as on 31 March 2004
The outstanding amount as on 31 March 2004 : Rs 25,000
Realisable value of
security : Rs 20,000
Period for which the advance has remained in 'doubtful'
category as on 31 March 2004 : 4 years ( i.e. Doubtful > 3 years)
Provisioning
requirement :
| As
on … | Provisions
on secured portion | Provisions
on unsecured portion | Total
(Rs) | | % |
Amt | % |
Amt | | 31
Mar 2004 | 50 |
10000 | 100 |
5000 | 15000 |
| 31 Mar 2005 |
60 | 12000 |
100 | 5000 |
17000 | | 31
Mar 2006 | 75 |
15000 | 100 |
5000 | 20000 |
| 31 Mar 2007 |
100 | 20000 |
100 | 5000 |
25000 |
II . Advances classified as 'doubtful more than three years' on or
after 1 April 2004
The outstanding amount as on 31 March 2004 : Rs 10,000
Realisable value of
security : Rs 8,000
Period for which the advance has remained in 'doubtful'
category as on
31 March 2004 : 2.5 years
Provisioning requirement :
| As
on … | Asset
classification | Provisions
on secured portion | Provisions
on unsecured portion | Total
(Rs) | | % |
Amt | % |
Amt | | |
31 Mar 2004 | Doubtful
1 to 3 years | 30 |
2400 | 100 |
2000 | 4400 |
| 31 Mar 2005 |
Doubtful > 3 years |
100 | 8000 |
100 | 2000 |
10000 |
|