RBI/2004-05/410
UBD(PCB).Cir.42/09.140.00/2004-05
March 30, 2005.
The Chief Executive Officers of All Primary
(Urban) Co-operative Banks
Dear Sir/Madam,
Prudential Norms in respect of Income Recognition,
Assets Classification, Provisioning and other related Matters-Procedure for
accounting of accrued interest-UCBs
Please refer to para 2(ii) regarding accounting
of accrued interest of borrowal accounts which are performing assets, of our
circular UBD.No.I & L(PCB)/46/12.05.00/94-95 dated 28.02.1995 on the captioned
subject.
2. We advise that the instructions contained
therein have been reviewed and it has been decided that the above paragraph
may be amended and substituted as under:
Existing paragraphNo 2(ii) :
"In respect of borrowal accounts which are
treated as performing assets, accrued interest can alternatively be debited
to the borrowal account and credited to interest account and taken to income
account. In such cases where the accrued interest has been debited to such
borrowal account but not actually received before the end of the accounting
year viz., Mach 31, equivalent amount corresponding to such unrealized interest
should be reversed by debit to profit and loss account and credited to 'Overdue
Interest Reserve Account."
Revised paragraph:
"In respect of borrowal accounts which are
treated as performing assets, accrued interest may be debited to the borrowal
account and credited to interest account and taken to income account."
3. Further a sub paragraph no 2(iii) to the
exiting paragraph no. 2 may be inserted as under:
Para 2(iii) -Reversal of income
"If any advance, including bills purchased
and discounted, becomes NPA as at the close of any year, interest accrued
and credited to income account in the corresponding previous year, should
be reversed or provided for if the same is not realised. This will apply
to Government guaranteed accounts also."
4. In view of the foregoing, the Memorandum
of Instructions annexed to the above circular has been suitably modified and
is given in the enclosed annexure. Other instructions contained therein, remain
unchanged.
5. Please acknowledge receipt to the concerned
Regional Office of Reserve Bank of India.
Yours faithfully,
(K.R.Ananda)
Chief General Manager-in-charge.
Annexure
Illustrative Accounting Entries to be passed
in respect of Accrued Interest on both the Performing and Non-performing Advances
I. Accrued Interest on Performing Advances
(i) It has been clarified in paragraph 2(ii)
of this circular that accrued interest in respect of performing advances may
be charged to borrowal accounts and taken to income account. Illustratively,
if the accrued interest is Rs.10,000/- in respect of performing advances of
a borrower 'X' (cash credit, overdraft, loan account, etc.) the following entries
can be passed in the Books of Account.
(Dr) Borrower's
account (CC, OD, loan) Rs.10,000.00
(Cr) Interest account Rs.10,000.00
(ii) In case the accrued interest of Rs.10,000/-
in respect of the borrowal account is not actually realised and the account
has become NPA as at the close of subsequent year, interest accrued and credited
to income account in the corresponding previous year, should be reversed or
provided for if the same is not realised by passing the following entries:
(Dr) (P&L a/c)
Rs. 10,000.00
(Cr) Overdue Interest
Reserve Account Rs. 10,000.00
(iii) In case accrued interest is realised
subsequently, the following entries may be passed:
(Dr) Cash/Bank account Rs.
10,000.00
(Cr) Borrower's Account (CC,
OD, Loan) Rs 10, 000.00
(Dr) Overdue Interest Reserve
Account Rs. 10, 000.00
(Cr) Interest
account Rs. 10,000.00
II. Accrued Interest on Non-Performing Advances
(i) Accrued interest in respect of non-performing
advances may be debited to 'Interest Receivable Account' and corresponding amount
credited to 'Overdue Interest Reserve Account'. For example, if the interest
accrued in respect of Cash Credit/OD/Loan etc. account of a borrower 'Y' is
Rs.20,000/- the accounting entries may be passed as under:
(Dr) Interest Receivable Account Rs.20,000.00
(Cr) Overdue
Interest Reserve Account Rs.20,000.00
(ii) Subsequently, if interest is actually realised,
the following accounting entries may be passed:
(Dr) Cash/Bank Account Rs.20,000.00
(Cr) Interest
account Rs.20,000.00
(Dr) Overdue Interest
Reserve Account Rs.20,000.00
(Cr) Interest Receivable
Account Rs.20,000.00
III. Accounting of Overdue Interest in Loan
Ledgers & Balance Sheet
(i) With a view to facilitating the banks
to work out the amount of interest receivable in respect of each non-performing
borrowal account, banks can consider opening a separate column in the individual
ledger accounts of such borrowers and interest receivable shown therein. This
would enable the banks to determine at a particular point of time, the amount
of interest actually to be recovered from the borrowers. Total of the amounts
shown under the separate columns in the loan ledgers would be interest receivable
in respect of non-performing advances and it would get reflected as such on
the 'assets' side of balance sheet with a corresponding item on the liabilities
side of the balance sheet as 'Overdue Interest Reserve'.
(ii) Similarly, a separate column should
be provided in the loan ledger in respect of performing advances for showing
accrued interest taken to income account on 31 March every year so that a
watch can be kept on them. If the accrued interest is not realised and the
account becomes NPA in the subsequent year, the amount has to be reversed
or provided for.
|