RBI/2004-05/102
RPCD.No.RRB.BC.15/03.05.34/2004-05.
August 6, 2004
All Regional Rural Banks
Dear Sir,
Annual Policy Statement for the year 2004-05: Additional Provisioning
Requirement for NPAs
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 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 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 enclosed to the
Governor's letter No.MPD.BC.249/07.01.279/2003-2004 dated May 18, 2004 (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.
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
- outstanding stock of NPAs as on March 31, 2004
- 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.
5. Please acknowledge receipt
to our concerned Regional Office.
Yours faithfully,
(G.Srinivasan)
Chief General Manager
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. "
Annex
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 |