RBI
No.2008-2009/106
DBOD.No.BP.BC. 26 /21.04.048/2008-09
July
30 2008
The Chairman / CMD / MD / CEO
All Scheduled Commercial Banks
(including Local Area Banks)
(Excluding RRBs)
Dear Sir,
Agricultural
Debt Waiver and Debt Relief Scheme, 2008 – Prudential Norms on Income Recognition,
Asset Classification and Provisioning, and Capital Adequacy
As
you are aware, the Hon’ble Finance Minister, in his Budget Speech (paragraph 73)
for 2008-09 has announced a debt waiver and debt relief scheme for farmers, for
implementation by, inter alia, all scheduled commercial banks (SCBs), and Local
Area Banks (LABs). The detailed scheme announced by the Government of India was
communicated to the SCBs and LABs vide our circular RPCD.No.PLFS.BC.72
/05.04.02/2007-08 dated May 23, 2008.
2. The guidelines
pertaining to Income Recognition, Asset Classification and Provisioning, and Capital
Adequacy as applicable to the loans covered by the captioned scheme, are furnished
in the Annex.
Yours faithfully,
(Prashant
Saran)
Chief General Manager-in-Charge
Annex
PRUDENTIAL
NORMS FOR THE BORROWAL ACCOUNTS COVERED UNDER THE AGRICULTURAL DEBT WAIVER AND
DEBT RELIEF SCHEME, 2008
1.
As advised vide the circular RPCD.No.PLFS.BC.72
/05.04.02/2007-08 dated May 23, 2008, while the entire ‘eligible amount’ shall
be waived in the case of a small or marginal farmer, in the case of ‘other farmers’,
there will be a one time settlement scheme (OTS) under which the farmer will be
given a rebate of 25 per cent of the ‘eligible amount’ subject to the condition
that the farmer repays the balance of 75 per cent of the ‘eligible amount’.
2.
Norms for the accounts subjected to Debt Waiver
2.1
As regards the small and marginal farmers eligible for debt waiver, the amount
eligible for waiver, as defined in the Para 4 of the enclosure to the aforesaid
circular, pending receipt from the Government of India, may be transferred by
the banks to a separate account named "Amount receivable from Government
of India under Agricultural Debt Waiver Scheme 2008". The balance in this
account should be reflected in Schedule 9 (Advances) of the Balance sheet.
2.2
The balance in this account may be treated by the banks as a "performing"
asset, provided adequate provision is made for the loss in Present Value (PV)
terms, computed under the assumption that such payments would be received from
Government of India in the following installments:
a)32%
of the total amount due by September 30, 2008,
b)19% by
July 31, 2009,
c)39% by July 2010, and
d)the
remaining 10% by July 2011.
However, the provision required
under the current norms for standard assets, need not be provided for in respect
of the balance in this account.
2.3 The discount rate for
arriving at the loss in PV terms as at para 2.2 above should be taken as 9.56
per cent, being the yield to maturity on 364-day Government of India Treasury
Bill, prevailing as on the date of this circular.
2.4 The
prudential provisions held in respect of the NPA accounts for which the debt waiver
has been granted may be reckoned for meeting the provisions required on PV basis.
2.5 In case, however, the amount of prudential provision
held is more than the amount of provision required on PV basis, such excess provision
may be reversed in a phased manner. This phased reversal may be effected in the
proportion of 32%, 19%, 39%, and 10% during the years ended March 2009, 2010,
2011 and 2012, respectively, only after the installments due from the Government,
for the relative years, have been received.
2.6 On receipt
of the final instalment from the Government, the provision made for loss in PV
terms may be transferred to the General Reserves, below the line.
2.7
In case the claim of a farmer is specifically rejected at any stage, the asset
classification of the account should be determined with reference to the original
date of NPA (as if the account had not been treated as performing in the interregnum
based on the transfer of the loan balance to the aforesaid account) and suitable
provision should be made. The provision made on PV basis may also be reckoned
against the NPA-provisions required, consequent upon the account being treated
as NPA due to the rejection of the claim.
3. Norms for
the accounts subjected to the Debt Relief
3.1
Under the scheme, in the case of ‘other’ farmers, the farmer will be given a rebate
of 25% of the "eligible amount", by the Government by credit to his
account, provided the farmer pays the balance of 75% of the ‘eligible amount".
The Scheme provides for payment of share of 75% by such farmers in three instalments
and the first two instalments shall be for an amount not less than one-third of
the farmer’s share. The last dates of payment of the three instalments will be
September 30, 2008; March 31, 2009 and June 30, 2009, respectively.
Asset
Classification
3.2 Where the farmers covered under the
Debt Relief Scheme have given the undertaking, agreeing to pay their share under
the OTS, their relevant accounts may be treated by banks as "standard"
/ "performing" provided –
(a) adequate provision
is made by the banks for the loss in PV terms for all the receivables due from
the borrowers as well as the Government; and
(b) such farmers
pay their share of the settlement within one month of the due dates.
Provisioning
3.3
Provisioning for standard assets: The accounts subject to debt relief would
stand classified as standard assets after receipt of the aforesaid undertaking
from the borrowers. Accordingly, such accounts would also attract the prudential
provisioning as applicable to standard assets.
3.4 Provisioning
on PV basis : For computing the amount of loss in PV terms under the Scheme,
the cash flows receivable from the farmers, as per the repayment schedule vide
para 3.1 above, as well as from the government should be discounted to the present
value. It may be assumed in this context that the Government’s contribution would
be received by June 30, 2010. The discount rate to be applied for the purpose
should be the interest rate at which the loan was granted including the element
of interest subsidy, if any, available from the Government.
3.5
The prudential provisions held in respect of the NPA accounts, for which the debt
waiver has been granted, may be reckoned for meeting the provisions required on
PV basis as well as for the standard assets (pursuant to classification of these
loans as standard) and shortfall, if any, may be provided for. Thus, the total
provisions held would comprise the provisions required on PV basis, provision
for standard assets and excess prudential provisions, if any, towards NPA.
3.6
Provisioning in case of down-gradation of accounts: As mentioned at para
3.2 (b) above, the accounts subject to Debt Relief Scheme would be classified
as standard / performing assets only if the farmers pay their share of the settlement
within one month of the pre-specified due dates. In case, however, the payments
are delayed by the farmers beyond one month of the respective due dates, the outstanding
amount in the relevant accounts of such farmers shall be treated as NPA. The asset
classification of such accounts shall be determined with reference to the original
date of NPA, (as if the account had not been treated as performing in the interregnum
based on the aforesaid undertaking). On such down-gradation of the accounts, additional
provisions as per the extant prudential norms should also be made.
For
meeting this additional provisioning requirement, the excess prudential provisions,
if any, held; the amount of provisions held for standard assets (as per para 3.3
above) together with the provision made on PV basis, all in respect of such downgraded
account, could be reckoned. Such additional prudential provisions too should be
continued to be held and reversed only as per the stipulation at para 3.7 below.
3.7 Reversal of excess prudential provisions : In
case the amount of the prudential NPA-provisions held are larger than the aggregate
of the provision required on PV basis and for the standard assets (pursuant to
classification of these loans as standard), such excess prudential provision should
not be reversed but be continued to be held till the earlier of the two events,
viz., : (a) till the entire outstanding of the borrower stands repaid – at which
point, the entire amount could be reversed to the P/L account; or (b) when the
amount of such excess provision exceeds the amount outstanding on account of the
repayments by the borrower – at which point, the amount of provision in excess
of the outstanding amount could be reversed to the P/L account.
3.8
Reversal of the provisions made on PV Basis: The provision made on PV basis
represents a permanent loss to the bank on account of delayed receipt of cash
flows and hence, should not be reversed to the P/L Account. The amount of such
provision should, therefore, be carried till the account is finally settled and
after receipt of the Government’s contribution under the Scheme, the amount should
be reversed to the General Reserves, below the line.
4.
Grant of fresh loans to the borrowers covered under the Debt Waiver and Debt
Relief Scheme
4.1 A
small or marginal farmer will become eligible for fresh agricultural loans upon
the eligible amount being waived, in terms of para 7.2 of the enclosure to the
circular RPCD.No.PLFS.BC.72 /05.04.02/2007-08 dated May 23, 2008. The fresh loan
may be treated as "performing asset", regardless of the asset classification
of the loan subjected to the Debt Waiver, and its subsequent asset classification
should be governed by the extant IRAC norms.
4.2 In case of "other farmers"
eligible for fresh short-term production loans and investment loans, as provided
for in Para 7.6 and 7.7, respectively, of the enclosure to the circular RPCD.No.PLFS.BC.72
/05.04.02/2007-08 dated May 23, 2008, these fresh loans may be treated as "performing
assets", regardless of the asset classification of the loan subjected to
the Debt Relief, and its subsequent asset classification
should be governed by the extant IRAC norms.
5.
Capital Adequacy
The amount outstanding in the
account styled as "Amount receivable from Government of India under Agricultural
Debt Waiver Scheme 2008" shall be treated as a claim on the Government of
India and would attract zero risk weight for the purpose of capital adequacy norms.
However, the amount outstanding in the accounts covered by the Debt Relief Scheme
shall be treated as a claim on the borrowers and risk weighted as per the extant
norms. This treatment would apply under the Basel I as well as Basel II Frameworks.