ASSET CLASSIFICATION, NORMS - SUMMARY

INCOME RECOGNITION & PROVISINING

PRUDENTIAL

Credit facility becomes NPA when, There are over dues for more than 90 days. The account remains Out of order in respect of OD/CC. The bill (Purchase or Discounted) remains overdue for more than 90 days. Drawing based on stock statements which are older than 3 months are to be considered as irregular. If such drawings are permitted for a continuous period of 90 days, then the account become NPA. Account where the regular\adhoc credit limits have not been reviewed\renewed within 180 days from the due date\date of adhoc sanction will be treated as NPA. OUT OF ORDER If the o\s balance is continuously in excess of sanctioned limit\drawing power. OR If there are no credits continuously for 90 days. OR Credits are not enough to cover interest debited during this period. SUB-STANDARD Sub-standard asset is one which has remained NPA for 12 months (Less than or Equal to). DOUBT FUL a) If the asset has remained in sub-standard category for 12 months.

LOSS Where the possibility of recovery are very remote. UPGRADATION If arrears of interest and principal are paid and the account is brought up-to-date NPA may be upgraded as Standard account. OTHER POINTS Asset classification is borrower wise and not facility wise. Some times debits arising out of invoked guarantee and devolved LCs are parked in separate accounts. In such cases, these should be treated as part of main account for the purpose of asset classification etc. INCOME RECOGNITION RBI has clarified and directed the banks to stop charging interest on advances which are classified as NPAs (DBCD Bp.No.46, dt.Sep-24,2009) Thus, interest accrued on NPAs will not be reflected in the banks book of accounts. The banks may calculate the accrued income on NPAs and have a separate record of the same. Interest already changed to NPAs accounts and credited to interest earned accounts should be reversed to the extent unrealized. i.e. Dr. P/L Interest Earned A/c

Cr. G/L Interest Suspense A/c OR Cr. G/L Recorded Interest A/c However, interest or advances against FDs, NSC, KVP, IVPs, and Life Policies may be taken to income a/c provided adequate margin is available. GOVERNMENT GUARANTEED ADVANCES Central government guarantee These advances though overdue have to be treated as NPA only when guarantee is invoked and repudiated. They are considered as Fully Secured However, this exemption is not applicable for income recognition. STATE GOVERNMENT GUARANTEE The advances are considered as fully secured. The advance a/c and investments in state government guarantee securities would be classified as NPA if there are over dues for more than 90 days. This is independent of invoking or otherwise of the guarantee. RBI GUIDELINES ON RESTRUCTURING OF ADVANCES Circular No.DBOD:37 Dt, Aug 27,2008 These guidelines supersede all the earlier guidelines on the subject. These guidelines apply to restructured advances EXCLUDING, Advances under CDR mechanism Advances to SME Advances restructured on account of natural calamities IA. THE GUIDELINES: GENERAL 1.1STANDARD, SUB-STANDARD & DOUBTFUL advances can be restructured 1.2 Restructuring has to be done only after financial viability is established. 1.3 Banks cannot restructure an account with retrospective effect. 1.4 The accounts classified as Standard Assets should be immediately re-classified as substandard upon restructuring. 1.5 The sub-standard and DOUBTFUL accounts upon restructuring will have the same classification. They will slip to lower asset classification as per the pre-restructuring repayment schedule. 1.6 Accounts classified as NPA upon restructuring can be upgraded to standard category after observation of satisfactory performance during the specified Period 1.6.1 Specified Period means a period of one year from the date when the first payment of interest or installment falls due under the restructured package. 1.6.2 Satisfactory performance means, Cash-credit a/c should not be out of order for more than 90 days and there should be no over dues at the end of period. Term Loan a/c No payment should have remained overdue for more than 90 days plus the account should be regular at the end of the period.

1.7 In case a restructured account which is Standard a/c is restructured for a second time; it should be classified as sub-standard. 1.8 The FILT created will be classified in the same category under which the restructured advance is classified. 1.9 In case of industrial projects where the commercial production is delayed beyond six months after the date of completion of projects (as originally envisaged), the account should be treated as sub-standard. For infrastructure projects two years may be allowed. IB. SPECIAL REGULATORY TREATMENT The following concessions were made available for accounts restructured during a limited period. The restructuring package should have been approved within 90 days from the date of receipt of application. The application should have been received by the bank before 31.03.2009 The dues to the bank should be Fully Secured If these conditions are fulfilled, the asset classification before restructuring can be retained.

II. CIRCULAR Dt. DEC 8, 2008 In the Aug 27, 2008 circular the following sectors were excluded from the special regulatory treatment :Personal loans Advances classified as CME Advances classified as CRE This circular made further concessions Special treatment extended to CRE also. Accounts restructured for second time also eligible for special treatment ( Except CRE/CME) III. Circular no. DBOD 104 Dt. JAN 2, 2009 Further Concessions: 1. Accounts which were standard as on sept 1, 2008 would continue to be standard. 2. Period for implementing extended to 120 days. 3. WCTL accounts, even if not fully secured can be treated as Standard. 4. Unsecured portion of WCTL to be provided for. IV. Circular Dt. FEB 4, 2009 Some more concessions: This circular extended the date of receipt of proposals for restructuring upto 31 March, 2009. With this relaxation, the last date for implementation of package has to be interpreted as 31 st July 2009, (i.e., within 120 days)