Income Recognition, Asset Classification (IRAC) and provisioning pertaining to Advances- Annual Closing of Accounts as on

Transcription

1 MAIN : ADV-147/ DT SUB : NPA - 12 CORPORATE OFFICE RECOVERY DEPARTMENT FILE M- 2 S- 208 Income Recognition, Asset Classification (IRAC) and provisioning pertaining to Advances- Annual Closing of Accounts as on Asset Quality has a direct impact on Balance Sheet of the Bank. Better Quality of Assets brings to fore robust Balance Sheet. Of late, Asset Quality of all banks, including ours, has come under increasing pressure with rising NPAs and Restructured advances on account of various factors, both external and internal. In the challenging dynamic environment, the daunting task ahead is to scale up recovery besides preventing slippage. In our All Branch Circular ADV.136/ dated , we have spelt out concrete & constructive measures towards improving recovery and containing NPAs. While there is perceptible improvement in recovery in many Zones we find that we are still far away from the annual recovery target. As 31 st March is fast approaching in 30 days, we urge upon the field level functionaries to accelerate recovery and ensure surpassing the set target recovery. Please take all pro-active measures immediately to recover all overdues in SMA-1, SMA-2 and SS accounts and prevent fresh slippages. It is now time to take stock of our NPAs. In compliance with the prudential norms prescribed by RBI, all our Branches shall undertake a detailed exercise of Income Recognition, Asset Classification (IRAC) and Provisioning pertaining to Advances for the Annual Closing of Accounts as on Branches are advised to carry out this annual exercise for March 13, by adhering to the general guidelines given in our all branch circular ADV.108/ dated Please update all your inputs in respect of your NPA portfolio and ensure they are completely free from any adverse remarks from Statutory Central Auditors (SCA) or RBI / Annual Financial Inspection. For Annual closing of accounts on 31st March 2013, Zonal Offices are to ensure that a) Audit impact (MOC), if any, pertaining to their NPAs, is duly incorporated in their books before furnishing their consolidated NPA data(npa Control Summary and NPA Movement) to Corporate Office /Recovery Department/Project Office/CBS). b) After finalization of the Balance Sheet, ZO will be informing the branches the list of MOC accounts and Branches should give effect for the same immediately in the CBS system and report compliance to ZO. Important guidelines pertaining to the Annual Closing of Accounts for and on IRAC norms are reproduced in Annexure-A for ready reference and total compliance by the Branches/Zonal Offices. We seek the co-operation of all the staff members at all the Branches and Zonal Offices for timely completion of the exercise on correct identification of NPA in line with the system driven approach and collation/submission of all NPA data for with utmost care, as any deficiency on this score will have an impact on the profit figures of the Bank. Please ensure that the information furnished for the NPA portfolio is accurate, consistent and devoid of any deficiency. We appreciate timely submission of all NPA data for and wish you all the very best for achieving the set Recovery Target for GENERAL MANAGER (R&L) C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 1

2 Annexure- A to All Branch Circular Adv. 147 / dated : IMPORTANT GUIDELINES ON ANNUAL CLOSING OF ACCOUNTS ( ) PERTAINING TO NPA MANAGEMENT ARE REPRODUCED HEREUNDER FOR IMMEDIATE REFERENCE AND METICULOUS COMPLIANCE BY ALL BRANCHES/ZONAL OFFICES:- 1. Compliance to Cent Percent System-driven identification of NPA: 1.1. Entire process of identification and collation of NPA is now 100% system-driven (CBS) as per directions of Government of India/Reserve Bank of India. Branches are advised to update the various data in CBS regarding realizable value of security, stocks/book debts statement particulars, Drawing Power, review/renewal date, Standard Assets End (SAE) Date for advances under Agriculture/allied activities, etc., to facilitate the system (CBS) to identify and generate error-free NPA data for Annual closing of accounts as on All Accounts identified by the system as NPA ( New IRAC in CBS) should be confirmed as NPA by the Branch Manager (BM) with his/her authentication under Old IRAC in CBS. This is applicable for all accounts without any exception for any account. RBI has already cautioned that any wrong asset classification/reporting and divergence between Bank s reported NPA and the NPA assessed by AFI/RBI will attract penal consequences under Banking Regulation Act. Hence, it is imperative that the Branches/Zonal Offices are to ensure strictly 100% compliance to the IRAC norms without attracting any adverse comments/divergence from AFI/RBI. Branches are to ensure correct asset-classification of their loans and advances Ninety Days Delinquency Norms are to be meticulously adhered to for identification of Fresh NPAs, guided by RBI Master Circular dated on IRAC (CBS Help Desk>Circular>RBI Master Circular>Recovery>MC on IRAC). In respect of Advances under Agriculture/allied activities, guidelines issued by CO: RBD (Cir.ADV.92 dt ) should be followed. As the identification of NPA is now 100% system driven, it is imperative that branches should strictly conform to the CBS identification by confirming the correct asset classification under Old IRAC without any exception and ensure error free compilation of NPA data. 1.4.Bills: Branches are advised to adhere to the guidelines provided in Annexure IV, for identifying SMA/NPAs in Bills portfolio, covering (a) Inland Bills, Devolved LC/Defaulted Guarantee & CDR and (b) Foreign Bills & Foreign Currency Loans. As per IRAC norms, even if one Bill is classified as NPA, the entire BP A/c and all the other credit facilities of the borrower are to be classified as NPA. As such, it is essential that branches are to ensure close follow up and timely realization of all bills purchased. 2. Borrower-wise classification: 2.1.Prudential norms application should be borrower-wise and not facility or accountwise. If a borrower is having multi-facilities and even if one of the credit facilities is identified as NPA, then all the other credit facilities of that borrower are to be classified as NPA (with the same asset classification). Branches/Zonal Offices are to ensure uniform asset classification for all the credit facilities of the borrower. While authorizing under Old IRAC for a borrower s account, the Branch Manager should ensure that all the credit facilities of the borrower are having uniform asset classification Branches/Zonal Offices are also to ensure classification of assets of the same borrowers in Domestic Branches vis-à-vis foreign branches uniformly as per RBI guidelines/accounting Policy of the Bank. C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 2

3 3. Scale up Recovery: 3.1. Attention of the Branches is drawn to our Circular ADV 136/ dated spelling out measures to scale up recovery and containing NPAs. Branches are to accelerate their recovery measures to achieve target set for NPA Recovery/reduction of their NPA level. Branches have to (a) expedite recovering the balance amount in all the OTS sanctioned accounts (b) vigorously implement the extant OTS policies vide Recovery Policy (vide cir ADV-6/ dt ) and thereby significantly reduce their stressed assets. 3.2.All Recovery in NPA accounts should be posted in the BBMIS template (No.502) then and there without any omission. Principal Recovery, write off & Upgradation as incorporated in Template 502 should tally with the corresponding figures ( F1-Cash Recovery of Principal; F2-Write off; F3 Upgradation to Standard) arrived at in the NPA Movement as on Reduce Fresh NPAs: Branches and Zonal Offices have to ensure the following towards containing NPAs:- i) Upgradation of Fresh NPAs: Recovery of overdue amount, rectification of non-monetary deficiencies like review / renewal, obtaining latest stock statement, porting correct DL, etc., must be given top priority so as to upgrade fresh NPAs quickly. As per RBI guidelines, if arrears of interest and principal are paid by the borrower in the case of loan accounts classified as NPAs, the account should no longer be treated as nonperforming and may be classified as standard accounts. With regard to Upgradation of a restructured/ rescheduled account which is classified as NPA contents of paragraphs 11.2 and 14.2 in the Part B of RBI Master circular on IRAC dt will be applicable. (ie.,after observation of satisfactory performance during the specified period of one year from the date when the first payment of interest or instalment of principal falls due under the terms of restructuring package). In any NPA account, if the deficiencies, due to which such account has to be classified as NPA, are rectified, branches themselves can upgrade such account after getting concurrence from the respective Zonal Manager who is the Validation Authority for ensuring the correctness of Asset Classification of all NPAs pertaining to the Branches under his/her control. ii) Close Monitoring of Restructured Accounts: As per IRAC norms, if satisfactory performance after specified period (one year) is not evidenced, the asset classification of the restructured account would be governed as per the applicable prudential norms with reference to the pre-restructuring repayment schedule. Hence it is essential that all terms & conditions of restructuring sanction are adhered to without any deviation and overdues if any, are recovered fully and satisfactory performance for the specified period(one year) is ensured. Branches have to ensure that the revised repayment schedule is correctly marked in CBS so as to avoid system wrongly identifying the account as NPA. Guidelines/Clarifications issued by HO: Credit Division from time to time (including circulars ADV.162/2010 dt and ADV 168/ dated , etc) should be strictly adhered to in respect of all restructured advances. iii) Monitoring of SMAs: Recovery of overdues and Rectification of irregularities, if any should be attended to expeditiously. In the eventuality of an account becoming NPA despite taking steps for retaining it in standard category, such account should be classified as NPA well before the last week of March 13 facilitating completion of system-driven identification of NPAs by iv. IRAC Norms should be strictly followed in asset classification by the Branches/ Zonal Offices and any deviation thereof will be viewed seriously. C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 3

4 v. Zonal EDPs shall ensure that the details of NPAs available in NPA Master is tallied with the Old IRAC status in CBS PO site under Monitoring of NPA except the Fresh NPAs identified if any, during the course of audit in respect of the Audit branches. It is to be ensured by the branches that fresh NPAs identified by the system upto is authenticated by the branches immediately enabling PO / CBS to capture fresh NPAs and include in the NPA Data before transmitting to ZEDPs. Simultaneously, unrealised portion of interest for fresh NPAs of the previous year, if any, should be reversed before NPA Date: 5.1. Branches/Zonal Offices are to ensure that the NPA date column in the system (CBS) is correctly filled up without leaving it blank. Zonal EDPs, before compiling the NPA data, should verify and confirm that the Branches under their radar provide correct NPA date and without leaving the NPA Date column blank (or with NULL value) If Auditors(SCA) identify any fresh NPA and submit any MOC, then Branches/ZOs are advised to satisfy themselves with the correctness of the NPA date furnished in the MOC and thereafter counter-sign the MOC before handing over to the auditors. verify the to verify the correctness of the NPA date 6. Memorandum of Interest (MOI): Branches/Zonal Offices are to ensure that the MOI is arrived at with correct rate of interest/od Interest (based on the contracted/decreed rate of interest) for all the NPA accounts and error-free figures furnished in the NPA Control Summary for Memorandum of Legal & Other Expenses (MLE / MOX) Once a borrowal account is classified as NPA, no further debit of any nature is to be allowed in the account whether towards debiting of interest or towards meeting expenses incurred in the process of recovery of the dues. Central Statutory Auditors have raised serious objections to such debits being made to NPA accounts. Please refer our Circular ADV-69/ dated for necessary guidance and ensure strict compliance of the guidelines given therein. 8. Value of Security: (Realisable Value instead of Market Value): Provisioning is now made based on Secured or Unsecured nature of the asset. With effect from , the rates of provisioning for Doubtful assets are aligned with RBI norms. Hence, Branches are advised to furnish the updated / latest realizable value of security (instead of market value) in the CBS system, so that the correct value of secured portion of the NPA is captured by the system and appropriate provision is calculated in the NPA master as on If any valuation report is silent on Realisable Value, then Branches are to take the Forced Sale Value (FSV) or Distressed Sale Value and furnish the same under the security column of NPA master/control summary CO:Credit Division, vide circular letter dt , had already advised ZMs to ensure compliance with the directions of Credit Risk Management Policy{para (a)} and advise the approved valuers to furnish Realisable value also in their valuation report henceforth. Hence please ensure that any Valuation Report obtained from the panel engineers henceforth, contains the Realisable Value in clear terms, besides other values like Market Value, Guideline Value, Forced or Distressed Sale Value. 9.Security for Consortium advances/common Security: In respect of consortium advances, value of our share of security alone should be ported in CBS (and not the aggregate value of the security for the consortium as a whole). In respect of multi-facility accounts, if common security is available for all the credit facilities, the security value should be proportionately distributed among the various facilities (instead of showing the same for only one facility and keeping the remaining facilities as unsecured C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 4

5 which will attract 100% provisioning). The total value of the Common security should not be shown as security for all individual facilties. 10. NPA Master- for March 2013: Project Office/CBS will make available the NPA Data as on on or before to Zonal EDPs for their processing and consolidation of NPA Master latest by Zonal EDP shall capture the details of NPA Recovery, Write off, Upgradation etc., from the CBS(and cross verify with the BBMIS NPA Recovery Template 502) while finalizing the NPA movement for the Quarter ending Zonal Offices to ensure that all particulars are properly entered into by the branches for facilitating reconciliation of account level NPA movement. 11. Capturing NPA Recovery: Branches should furnish the details of NPA recovery (i.e. Principal, MOI and MLE) in the NPA recovery template (No.502) in the BBMIS site without any omission only in the case of OLD NPAs ie NPAs outstanding as on Recoveries registered in Fresh NPAs identified during the period from should not be reckoned as NPA recovery, as gross NPA minus recovery during the current year/quarter/hy is taken as fresh slippage. Branches shall furnish details of Upgradation, Write off and Recovery in Written off accounts in the separate tables that have been appended in the NPA recovery template (No.502) for the period to without any omission. -Zonal EDP shall capture the details of NPA Recovery, Write off, Upgradation etc., from the CBS (and cross verify with the BBMIS NPA Recovery Template 502) while finalizing the NPA movement for the Quarter ending Zonal Offices are to ensure that all particulars are properly entered into by branches facilitating reconciliation of account level NPA movement. audit impact (MOC), if any, pertaining to their NPAs, is duly incorporated before furnishing the consolidated NPA data to Corporate Office. /Recovery/Project Office/CBS). MOC effect should be given by the Branches immediately(in CBS) after completion of the audit/closing of accounts). Details of write-off including write-off in AUC accounts: Actual amount written off from furnished in the template No.502 should tally with the details available in the CGL head (No ) WRITE OFF CLAIM ACCOUNTS. It is observed that in certain instances, branches have furnished the same amount in both Upgradation and Write off columns in the template No.502. Such errors if any should be rectified immediately. The amount of upgradation should be arrived by deducting the recovery made during the twelve months period ending from the book balance outstanding as on Please ensure that NPA Recovery, Upgradation, Write off and Recovery in written off accounts are furnished in RUPEES only in RECOVERY template No AUC Recovery / Write off: & Auditor s Certificate: Branches having AUC accounts shall continue to furnish cumulative recovery / write off details in the RECOVERY template No.502 itself (Template 502 is now streamlined (by merging (& dispensing with) the erstwhile template No.487) for incorporating all recoveries including AUC recovery and write off) for the period from to C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 5

6 Recovery registered in AUC accounts should be reported correctly in the template No.502 for vouching the income at HO level. Recovery of Principal, MoI, MLE / Write off pertaining to AUC accounts should be furnished carefully and correctly without any omission as any omission will have an impact on Bank s profit and NPA movement. In case of necessity, Zonal Offices are authorized to allow the branches to edit the details furnished by activating the To allow edit by the Branch furnished at the end of the table (template No.502). Branches shall enter ZERO compulsorily in the write off column (Template No.502), wherever there is no write off and / or recovery to facilitate registering attendance at Zonal Office / Head Office. After finalization, branch should take a print out of the AUC Recovery Report and send the same to Zonal Office duly certified by the Branch Manager and Concurrent / Internal / Statutory Auditor(for branches selected for Audit). (NPA / AUC Recovery Reports are available in the opening page of MIS site under Information Dock) Zonal Offices after confirming that all branches with AUC accounts have entered the data shall take a print out for the Zonal consolidation and send the same to us duly signed by Zonal Manager. Branches / Zonal Offices should submit the AUC Recovery / Write off statement to Zonal Office / Corporate Office only in the Template Report Format 13. Since supply of printed forms of NPA control summary is dispensed with, Branches/ Zonal Offices are advised to use the computer generated statements for the purpose. 14. Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE): A separate column for CGTMSE is now provided in NPA Processing software under Edit menu available Zone-wise-updation>>Fresh NPA Addition through MOC >>Add / Edit for ZEDP. Branches should separately furnish the relevant data pertaining to the claim amount settled by the CGTMSE, without clubbing the same with DICGC/ECGC Claim settled account. Branches/Zonal Offices to ensure that provision is arrived at for the net balance after deducting the claim settled amount in DICGC/ECGC/CGTMSE. 15.Branches / Zonal Offices shall ensure that the data on DICGC / CGTMSE / ECGC settled amount, Recovery in written off accounts furnished in various Annual returns tally with that of the respective headings in their General Ledger. 16. Interest Realisable: Maintaining the Interest Realisable head for NPAs (BGL-98810), had already been dispensed with since September However, Interest realisable pertaining to Restructured Accounts (BGL-96371) will continue to be maintained. 17. Accounting recovery in MOI by branches: It is observed that some branches are, without routing recovery of MOI through the concerned account, directly crediting GL head under interest income. This is not correct. Any recovery made has to be routed through the respective Borrowal account only. Any recovery taken directly to income will not reflect in the statement of account filed before DRT / Court and furnished to the Customer. As the account copy will not reflect the true picture, reconstructing the account with details of MOI recovered will become very difficult at a later date. Hence Branches/Zonal Offices are advised to ensure that all recoveries made towards MOI are routed through the respective NPA account only Verification of MOI: Branches are to verify and ensure that the MOI figures furnished in the NPA control summary/npa Master are correct and accurate based on the contracted/decreed rate of interest. C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 6

7 18. Task Force of Zonal Offices (constituted specially for the Annual closing work), shall scrutinize the NPA data pushed by the Project Office and ensure that they are in tandem with actual position. The task force shall also verify/ensure that the exercise of identification & collation of NPAs have been carried out correctly as per IRAC Norms/CO guidelines. The Task Force will also ensure that RBI directives on 100% identification/collation of NPA data through the CBS system are complied with. 19.With regard to NPA processing, Verification of Work Sheet, Control Summary and Movement, Zonal EDPs / Branches shall follow the guidelines placed in the Help Desk of Project Office (CBS), Chennai. 20. TIME SCHEDULE FOR SUBMISSION OF NPA DATA: Details as required above shall be furnished by the branches for period from to cumulatively in the respective templates by and the time schedule for submission of the statements by the Branches / Zonal Offices to Zonal Offices / Head Office is as hereunder: TIME SCHEDULE FOR SUBMISSION OF NPA DATA Br to ZO ZO to CO:Recovery a) Annexure I: Quick Data on NPA Recovery b) Annexure II: Recovery made in AUC c) Annexure III Fresh NPA with Status Reports (format enclosed) d) NPA Control Summary / NPA Movement NPA MASTER: NPA Data as on will be made available to Zonal EDPs by Project Office / CBS in the new software on or before Zonal EDPs, meanwhile, are advised to keep the details of NPA Recovery, Upgradation and Write off ready for processing and integrated with the NPA data to avoid any loss of time. While processing, the following guidelines may be followed by ZEDPs:- Opening balance as on (audited) should be adopted / captured from the ZEDP software. It is reiterated that the opening balance should not be changed. Closing balance as on , details of NPA accounts transferred etc, should be adopted from the NPA data made available by PO/CBS. Details of NPA recovery (Principal), Upgradation, Write off, etc should be captured from the CBS and tallied with BBMIS template No.502. In case of all accounts, CBS balance as on only has to be adopted. Difference if any, shall be accounted either as addition to existing NPA or as upgradation. ZEDPs after incorporating the required details like recovery etc., in the NPA data made available by the PO/ CBS, process them and send the individual details of NPAs and Control summary to all branches. Such statements should be sent on priority to the Branches that are selected for Audit Necessary steps shall be taken so that the Audit is completed well before the scheduled time i.e. on or before On finalization, Control Summary generated from new software after incorporating the required changes by ZEDPs, should be sent to Corporate Office, Recovery Department Office before C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 7

8 22. PROVISIONS FOR ADVANCES AT PRESCRIBED RATES: Guidelines on IRAC norms detailed in our earlier circular No.ADV.62/ dated and guidelines issued from time to time should be followed scrupulously. Master Circular on IRAC norms issued by RBI (ref: RBI / /39 DBOD.No.BP.BC.9 / / dated July 2, 2012) is made available in CBS help desk (Navigation: CBS Help Desk>Circular>RBI Master Circular>Recovery>MC on IRAC and Provisioning) for reference. Salient features of IRAC norms are reproduced here under: 23. Provisioning norms adopted by the Bank is as follows: a. Substandard Assets: RBI vide cir enhanced the provisions for unsecured exposures under the sub standard assets to 25%. As per our Board approval dated Provisioning for NPAs under Sub-standard category will be uniformly on the outstanding exposure (ie.,for unsecured and secured as well), net of interest reversal, if any. Exposure shall include all funded and non-funded exposures (including underwriting and similar commitments like Guarantees/LCs, etc) b. Doubtful and Loss Assets: In accordance with the decision taken by our Board on , w.e.f , the rates of Provisioning for Doubtful and Loss category of assets have been aligned with the RBI guidelines as follows:- Category of NPA Rate of Provision as per RBI guideline(%) Rate of provisions adopted by our Bank wef (%) Sub-standard secured Sub-standard unsecured Doubtful secured upto 1 year Doubtful unsecured upto 1 year Doubtful secured > 1 year and upto 3 years Doubtful unsecured > 1 year and upto years Doubtful > 3 years (for both secured and unsecured) Loss assets Branches are advised to note that the change in accounting policy pertaining to the NPA Provision is effective from Hence the full provision (100% for both secured and unsecured portion) kept for the D1 & D2 assets as on , will continue to have 100% provision for also. Only for the fresh D1 & D2 (secured component) w.e.f , the provisioning rate would be 25% for D1 and 40% for D2 of the secured portion of NPA. For unsecured portion of such NPAs, 100% provision to be kept c: SECURITY VALUE: In the context of the revision in the rates of provisioning w.e.f as above, and bi-furcation of assets into secured & unsecured portion, it is essential that Branches should provide the correct realizable value of securities; Branches should ensure that documentary evidence(like latest Engineer s Valuation Reports/stock statement/balance sheet/etc) for the latest realizable value of securities is available in their files for ready reference by the Statutory Central Auditors/AFI/RBI officials and Inspector of Branches Branches shall ensure that latest realizable value of security is updated for all NPA accounts appropriately under CBS mode in the respective boxes. It should be ensured C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 8

9 that Valuation Report of fixed assets like Plant and Machinery is not more than two years old and that of Land and Building is not more than three years old. In such valuations, depreciation in asset value due to disuse / technological obsolescence should be considered. The updated information(on realizable value of security) will also be helpful for initiating appropriate recovery action. Branches shall furnish only the present realisable value of securities against the Securities column when the account is identified as NPA, instead of furnishing the Market Value or any other value which cannot be realised In respect of multi-facility accounts, if common security is available for all credit facilities, the security value should be proportionately distributed among the various facilities. (Instead of showing the same for only one facility but keeping the remaining facilities as unsecured (ie., with zero value) thus attracting 100% provisioning). The total value of the Common security should not be shown as security for all individual facilties In respect of Devolved LCs OR Defaulted Guarantees Account, the value of the proportionate security (principal/collateral) should be ported in CBS, out of the total value of security(principal/collateral) originally given for the respective LC/Guarantee facilities Erosion in the value of security:- An asset may be straightaway classified as Doubtful or Loss asset, depending on the erosion in the value of security or non-availability of security. If the realisable value of the security is less than 50% of the value assessed by the Bank or accepted by RBI at the time of last inspection, the asset shall be classified as Doubtful and if it is less than 10% of the outstanding as Loss asset FRAUD ACCOUNTS: Accounts classified as FRAUD should be categorized as LOSS assets and full provision (100%) made irrespective of Security and date of NPA. Branches/ ZOs are to ensure compliance to this classification correctly, free from any error Branches/Zonal Offices are to note that the policy of income recognition should be objective and based on record of recovery rather than on any subjective considerations Zonal Offices should ensure that all NPAs are correctly identified through the CBS in accordance with the IRAC norms and proper classification of assets is carried out as per extant guidelines Accounts with temporary deficiencies: An account should not be classified as NPA merely due to the existence of some deficiencies which are temporary in nature. Working capital accounts where drawings are permitted on the basis of stock statements dated and earlier shall be classified as NPA as on An account where the regular / ad hoc credit limits have not been reviewed / renewed within 180 days from the due date / date of ad hoc sanction shall be treated as NPA BORROWER-WISE CLASSIFICATION: Asset Classification SHOULD BE be borrower-wise and not facility-wise: Prudential norms application should be borrower-wise and not facility or account-wise. This implies that even if one of the credit facilities of the borrower is NPA, then all the facilities of that borrower are to be classified as NPA. Branches/Zonal Offices are to ensure uniform asset classification for all the credit facilities of the borrower Loans with moratorium for payment of interest: In the case of accounts where moratorium is available for payment of interest, payment of interest becomes 'due' only after the moratorium or gestation period is over. C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 9

10 23.8. Staff Advances like Housing Loan or similar advances granted to staff members where interest is payable after recovery of principal, interest need not be considered as overdue till the entire principal is recovered and interest becomes due for payment Agricultural advances: a) Where natural calamities impair the repaying capacity of agricultural borrowers, branches are authorised to provide relief measure viz., conversion of the short-term production loan into a term loan or re-schedulement of the repayment period; and the sanctioning of fresh short term loan, subject to various guidelines issued by Corporate Office- Rural Banking Department (RBD), from time to time. b) In such cases of conversion or re-schedulement, the term loan as well as fresh shortterm loan may be treated as current dues and need not be classified as NPA. The asset classification of these loans would thereafter be governed by the revised terms & conditions and would be treated as NPA if interest and/or instalment of principal remains overdue for two crop seasons for short duration crops and for one crop season for long duration crops as explained above. c) Branches should be guided by the directions of CO:RBD with regard to (i) relief measures to farmers, who have suffered production and income losses on account of successive natural calamities. (ii) marking of Standard Assets End Date(SAED) for all the existing crop loans for facilitating system driven identification of NPAs. Branches / Zonal Offices are advised to refer CO RBD cir. ADV 92/ dt and comply with the guidelines for identification of NPAs in all agriculture advances Restructuring / Rescheduling of Loans: With regard to restructuring / rescheduling of accounts inclusive of accounts under CDR mechanism and Projects under implementation, guidelines issued from time to time by CO: Credit Division, MSMED, RBD, Personal Banking Departments shall apply. 24. INTEREST REVERSAL ON FRESH NPAs: System (CBS) automatically reverses the un-recovered interest portion pertaining to the current year ( ), if any. In such cases, the amount of uncollected portion of interest to be furnished in the NPA control summary would be NIL. In the event of uncollected portion of interest pertaining to the previous years ( & earlier) if any, the same shall have to be reversed manually by the branches on or before so as to assess the impact on Bank s Profit. Statutory Central Auditors during their review pertaining to closing of accounts have observed that in certain instances, uncollected portion of interest pertaining to previous years have not been reversed. Hence, branches are advised to take utmost care while undertaking the exercise of interest reversals of uncollected portion. Consequently, under the CBS environment, the reversal of uncollected portion of interest pertaining to the years & earlier will generally be nil and if any amount of uncollected interest portion remains unreversed due to MoCs or any technical reasons, branches shall reverse the same manually. Only the uncollected and unreversed interest portion needs to be furnished for the respective years in the NPA control summary as we have to account for at CO. 25. FLAGGING / DEFLAGGING OF NPAs: In the eventuality of any account becoming NPA despite taking steps for retaining them in standard category through recovery of overdues and rectification of irregularities, such C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 10

11 accounts should be flagged as NPAs well before Such a step will only help in smooth transition of NPA module of ZEDP to CBS NPA module. Except the accounts identified as fresh NPAs and furnished in the MOCs after by Auditors (in the case of audit branches), all other Fresh NPAs pertaining to the current quarter and left out a/cs pertaining to the previous periods if any, should be Flagged latest by Upgraded / Restructured / Rescheduled NPA accounts shall have to be deflagged in CBS including those of exempted category of accounts, if any, that were flagged inadvertently. ZEDPs should ensure that relevant details are appearing in the respective columns and NULL information (blank or --.) is not furnished especially against date of NPA, asset classification, etc. Such deficiencies should be taken up with the branches immediately based on the NPA data made available by PO/ CBS and rectified instantly. 26. MIGRATION OF ASSET STATUS: It is reiterated that in the case of accounts that are migrating / slipping from one category to the other category of assets (e.g. SS to D1, D1 to D2 & D2 to D3), correct Asset Status (NPA codes- IRAC status) shall be furnished and exact provisioning made. Such migration is purely based on age of NPA and any other aspect of expected OTS recovery, action under SARFAESI etc, should not be taken into account to delay the migration. While marking asset classification for NPA accounts, the details furnished in the following table may be made use of except in the case of accounts which are straightaway classified as Doubtful or Loss due to erosion in the value of security / non availability of security / existence of other factors such as frauds committed by borrowers: Date of NPA Asset Classification as on to SS to D to D2 Prior to D3 Arrangements have been made for effecting the migration of asset status as above in the NPA data as at which would be made available by PO/ CBS. ZEDPs are advised to verify the Asset Status furnished and ensure necessary changes required if any, are effected and provision is arrived at correctly. NPA Control Summary shall be forwarded by ZO to CO: Recovery only after verification of Asset Status by ZO on the above lines. 27. VALIDATION LEVEL FOR ENSURING PROPER ASSET CLASSIFICATION: Reference is invited to the Policy Guidelines furnished in the Recovery Policy vide Point 2 in Page-6 of CO Recovery Dept All Branch Circular ADV/06/ (M-2) dt Accordingly, in tune with RBI guidelines on Income Recognition, Asset Classification (IRAC) and provisioning, Zonal Managers will certify the correctness of Asset Classification of all NPAs pertaining to the Branches under the Zone. Hence compliance of ZO in ensuring the correct Asset classification is imperative, before forwarding the NPA data to Corporate Office/Recovery/Project Office. 28. Sector / Sub-sector and IB_Codes: (and Segment/Industry Classification) Reserve Bank of India vide their communication dated has made mandatory additional disclosures on sector-wise NPAs. Hence Branches shall ensure that correct Sector / Sub-sector codes and IB_codes (including segment/industry classification) are furnished / updated in the CISLA screen for all NPAs. In respect of multi-facility accounts of a borrower, it is to be ensured by the Branches that correct and identical/uniform sub sector codes, IB codes/asset-classification (SS/D1/D2/D3/Loss) are provided. As important MIS reports are taken, based on the above basic inputs provided by branches; please ensure error free porting of data. C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 11

12 29. Accelerate recovery from ARC accounts assigned and ensure zero difference in contra accounts:- As advised in CO Recovery Department circular ADV:152/ dated and circular letters dated and addressed to ZMs, Branches/Zonal offices have to focus on recovery from the accounts assigned to the ARCs. Accounting entries for the ARC transactions should be free from any error. Difference in ARC contra accounts, if any, should be attended to, then & there, and rectified immediately by taking up with Project Office/ZO/CO-Recovery. Branches/Zonal Offices are to ensure that there is no difference in ARC Contra accounts/arc Interest Receivable. Branch Managers will be held responsible/accountable if any difference is allowed to persist in ARC Contra Accounts/ARC Interest Receivable as on IMMEDIATE ACTION before : a) Recover system debited (automatic) processing charges. b) Recover overdues in all SMA accounts c) Recover all Interest / instalments due to prevent slippage. d) Update Realisable Value of securities/ stock statement details & port latest review / renewal date in CBS e) Ensure correct marking of DL & satisfactory performance in all Restructured Accounts f) Ensure that Balance outstanding is within the Drawing Limit. g) Ensure Authentication/confirmation of Asset Classification in OLD IRAC, in alignment with CBS System driven identification in New IRAC. C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 12

13 ANNEXURE-I : QUICK DATA ON NPA RECOVERY FOR CUMULATIVE NPA RECOVERY PERFORMANCE (FROM TO ) [To be submitted by the Branches to Zonal Office on & Zonal Offices to Corporate Office/Recovery Dept on itself) (While compiling this statement, please ensure that all Recovery /Upgradation/write off of your Branch / Zone are correctly and accurately posted in BB: MIS Template-502 without any omission) i) NPA RECOVERY (Rs. in lakhs) A] NPA Recovery towards Principal* B] Recovery of MOI * C] Recovery of MLE* D] Recovery in written off accounts* E) TOTAL NPA RECOVERY (A+B+C+D)* *- (as furnished in the Template No.502) F) Out of Principal Recovery [A] given above, cumulative recovery in AUC Accounts ie.,advances Under Collection [AUC] (as furnished in the template No..502) *** G) Interest Charged during & earlier but not collected on fresh NPAs [Fresh NPAs identified during to ] *** H) Interest Charged during but not collected on fresh NPAs [Fresh NPAs identified during to ] I) Upgradation (as furnished in the Template No.502) J) Total Write off (as furnished in the Template No.502) K) Of the above, Write off in AUC accounts (as furnished in the template No.502) L) Mode of Recovery- Break up for the period [ ] Mode of Recovery Made Through Cumulative from Compromise Civil Suit DRT SARFAESI Recovery Agents Normal Recovery Total Recovery Date: BRANCH / ZONAL MANAGER *** In respect of Fresh NPAs, the system will automatically reverse the uncollected interest for the FY year if any, and also will cease charging further interest once the account is marked as NPA by the Branch. In the event of any amount left un-reversed due to any technical reason and Audit Impact if any, the same only has to be reported. Ensure that the details of NPA recovery furnished in the NPA recovery BBMIS-Template (Weekly>>IRRD>>502-Details of NPA recovery made) and furnished to Zonal Office / Corporate Office-Recovery Department, tallies with that of quick data as above. C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 13

14 ANNEXURE II: Recovery & Write off in AUC Accounts This statement should be submitted ONLY as per the format ported in the BBMIS site (BBMIS-502) and it can be generated from the Recovery Portal in MIS Website, as detailed hereunder: Recovery Portal in MIS Website In order to arrive at the actual recovery performance in NPA accounts, at the request of CO: Recovery Department, CO: MIS Department has developed software for capturing the recovery details in NPA / AUC accounts under the Report ID in MIS website. Navigation to access the report Weekly Menu -- >> IRRD -- >> 502 Details of NPA recovery Details of NPA / AUC accounts as of are ported in the page with the tentative recovery amount against each account under the CBS recovery column. The recovery amount is updated every day. Branches are requested to update the actual recovery made under Principal, MOI, MLE and Write off amount from onwards. 2. Just below the recovery portal in the same Report ID 502, another portal for capturing the Recovery in Written Off accounts is also ported. Branches are requested to update the recovery details, wherever they made recovery under this head. Reports on NPA / AUC Recovery The NPA Recovery Reports are available in the Opening Page of BB:MIS site under Information Dock. These reports are generated based on the recovery details entered by the Branches. By clicking on the hyperlink the following reports can be downloaded. a) Total list of NPA accounts where recovery is entered b) Recovery details in AUC accounts c) NPA Recovery of Rs 1 lakh and above for the given period d) Date wise NPA recovery of Rs. 1 lakh and above for the given period e) Cumulative Recovery / write off in AUC accounts for Auditor s certification. Branches are requested to update the recovery details without omission in BB-MIS site, in order to arrive at the actual / correct recovery details. C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 14

15 ANNEXURE ii.. CONTD Recovery & Write off in AUC Accounts: Statement of Recoveries made in Select Borrowal Accounts (Accounts Under Collection (AUC) ) for the period to (Amount in lakhs) From To Sl. No Branch Borrower CBS No Total Recovery / Write off Recovery Principal MoI MLE Total Write Off Statutory Auditor BRANCH / ZONAL MANAGER Membership No. Date : Totals should be furnished in all columns. Details of AUC accounts transferred to other branches/armbs should be informed to us for making necessary changes in the template. Annexure III ii) Fresh NPA details ###: 1) Total of Fresh NPAs identified during to ) of which accounts with book balance of Rs.10 lakhs and above No Amount [Rs in lakhs] Account-wise Status Report on Fresh NPAs (with book balance of Rs 25 lakhs & above) annexed (vide Annexure III-A) Date: BRANCH / ZONAL MANAGER ### (i.e. Fresh NPAs identified from to Only outstanding position excluding INCA to be furnished) Zonal EDPs should put in place a system for verification of the details furnished by the branches and ensure error-free reporting of all NPA data. C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 15

16 Annexure III-A; STATUS REPORT on Fresh NPAs with book balance of Rs 25 lakhs & above as on : 01 Name of the account /CBS: A/c No/Nos.. 02 Name of the Branch / Zone 03 Constitution 04 Names of partners / Directors 05 Names of guarantors 06 Line of Activity 07 Present working status of the unit 08 Date of Original sanction & Sanctioning Authority 09 Date of Latest Renewal and Sanctioning Authority 10 Limits sanctioned [All amounts in lakhs ] Nature facility Date of latest sanction / Renewal / Review Limit Book Balance As on MOI From MLE Total Dues As on Security details Primary:- At the time of sanction Present Valuation Value Date Valuer name Value Date Valuer name Collateral / Addl:- TOTAL 12 Date of NPA & Balance as on date of NPA and Asset Classification. Reasons for slippage to NPA Date : Balance: Rs. Lakhs Asset Classification: 13 Recovery from the date of NPA 14 Date of the suit / & amount 15 Present Position of suit - 16 If decreed, details 17 SARFAESI Action, if any details 18 ECGC / DIGC claim settled amount 19 Brief History of the Account: 20 Present status. (Please indicate present position of: Up gradation Full Recovery SAFAESI Action OTS possibility Other Steps / Action proposed/timeline) Date: Date of Notice Issued Date of Possession Taken Date of Sale Notice Issued Present Status of above Branch Manager/ZONAL MANAGER C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 16

17 ANNEXURE IV: A) INLAND BILLS, DEVOLVED LC, DEFAULTED GUARANTEE & CDR a) Inland Bills Purchased/Inland Bills Negotiated/Supply BP bills: 1. NPA parameter is available for excess over limit and expired limits. 2. Bill-wise disbursement/outstanding is available in Exim bills. 3. Bills outstanding for more than 30 days from the due date, CBS EOD programme will read it and flag the related bill liability account as SMA1. 4. Even if one bill becomes SMA, the whole liability in the account will be flagged as SMA. Action Point: For the old overdue bills if any, the branches should mark the asset status manually i.e. depending on the overdue status of earliest bill remaining overdue as on the SMA 1 (more than 30 days from the date of due date of the bill), SMA 2 (more than 60 days from the date of due date of the bill) and SS (more than 90 days from the date of due date of the bill) to be marked so that the NPA status will be tracked by the system itself there after. Branches to ensure that all bill purchase / negotiation transactions are routed through Eximbills module to meet this requirement of system based identification of NPA s. b) BP Returned unpaid / Advance Bills / Devolved LC liability / Defaulted Guarantee: The Bill details are in exim-bills.. Further crystallization of non-fund based facilities also attracts IRAC norms. Parameter is set in such a way that the accounts will become SMA1 after 30 days of debit. 1. Action Point: Separate accounts are to be opened for each returned bill / Devolved LC / Defaulted Guarantee (since the NPA date is based on the date of impairment), so that the usual asset classification norms for SMA 1 (more than 30 days from the date of debit), SMA 2 (more than 60 days from the date of debit) and SS (more than 90 days from the date of debit) will be captured by the system itself. Necessary modifications are already made in Eximbills to read the overdue bills and to mark the related bill liability account as SMA1 in bancs. In case of old BP Returned unpaid / Advance Bills / Devolved LC/ Defaulted Guarantee liabilities, pending if any, depending on the overdue status of earliest bill returned unpaid / devolved LC / defaulted guarantee as on the SMA 1 (more than 30 days from the date of debit), SMA 2 (more than 60 days from the date of debit) and SS (more than 90 days from the date of debit) to be marked so that the NPA status will be tracked by the system itself thereafter. c) CDR: For CDR accounts the branches have to mark the asset status manually based on asset classification on the date of reference to CDR and progress in implementation of the package. Branches to inform the developments account wise since the submission of reference to CDR Cell and seek guidance from HO credit Division well in advance. C:\Documents and Settings\Administrator\Desktop\CIC CIR \M2 ADV\WORD\ADV_147.doc 17