Purpose for Urgent need for this meeting

The mistakes identified in the reporting of

ACF is causing serious concern in the provision requirement which has direct impact on the NET PROFIT. The Statutory Central Auditors have expressed strong desire on preparation of Flawless ACF as on March 2012.

ASSET CLASSIFICATION MIGRATION NORMS

12

DA 1

DA 2 1

Months in SS / More than 12 months from date of NPA Less than 24 months from date of NPA More than 12 Months in DA 1/ More than 24 Months from date of NPA Less than 36 months from date of NPA
More

than 24 Months in DA

DA 2 2

[DA

1 - 12 m + DA 2 1 - 12 m] /

More

than 36 Months from date of NPA Less than 48 months from date of NPA
More

than 36 Months in DA than 48 Months from date of NPA

DA 3

[DA

1 - 12 m + DA 2 1 - 12 m + DA 2 2 12m] /

More

ASSET CLASSIFICATION AS ON 31.03.2012 Date of NPA SS/DA/ Falling Loss Between CLASSIFIED AS NPA for a period <=12 months Remained NPA for a period more than 12 m <=24 Months (asset in SS for 12 months) (12m + 1day to 24 m) Remained NPA for a period more than >24 m to <=36 months (24m + 1day to 36 m) Remained NPA for a period more than >36m to <=48 months (36M+1 day to 48 m)

SS
D1 D2 1 D2 2 All D3

1.4.11 to 31.03.12 1.4.10 to 31.03.11

1.4.09 to 31.03.10 1.4.08 to 31.03.09

Remained NPA for a period more than >48m (SS -12 m + DA1&2 36m)

On or prior to 31/3/2008

PROVISIONING NORMS FOR SUBSTANDARD ASSETS

at the time of sanction of advance Value of security / ECGC / CGTSI (Security Value Cannot be 0 in the coverage value will not be deducted to find unsecured portion. But must be case of a secured advance)
entered to reckon requirement when the migrates to DA provision account

SECURED

15% of outstanding

Unsecured exposure is defined as an exposure where the realisable value of the security as assessed by bank/approved valuers/RBI is not more than 10%, ab-initio, of the outstanding exposure

ABINITIO UNSECURED

ECGC / CGTSI coverage value will not be deducted to find unsecured portion. But must be entered to reckon provision requirement when the account migrates to DA

15% + additional 10% = 25%

To avail of this benefit of lower provisioning, the banks should have in place an appropriate mechanism to escrow the cash flows and also have a clear and legal first claim on these cash flows

Unsecured in respect of infrastructure loan

20%

ASSET CLASSIFICATION ACF 2 - Doubtful Provision Requirement Assets 100 % of security short fall Period for which the
advance has remained in Doubtful category

plus

Up to 1 yr

25% of secured portion

1 to 3 years
More than 3 years

40% of secured portion

100% of secured portion. (i.e.all D3 accounts Provision at 100% of the O/S)

LOSS ASSETS - PROVISION IS 100% of outstanding Total provision required Cannot and shall not exceed the total outstanding for which provision is compiled

COMMON ERRORS OBSERVED WHILE COMPILING ACF BY BRANCHES

Appropriate software version as advised (latest) by ITD to be used ACF certified by SCA / Concurrent Auditors are different from what
is submitted through Stand alone package

ACF not verified by Branches / ROs All required details to be entered when the a/c classified as NPA

Advised through various circulars to take print out of standalone package for certification

Incomplete details at first entry will affect provision during aging process Security details Necessitates correct valuation and correct Entry
Except ab-initio cases there can not be 0 security value in SS Many accounts security column left blank attracting 100% provision More than one account of same borrower

either security value entered against one account other accounts left

unsecured Total security value entered against all accounts inflating security value Our share alone to be entered in consortium accounts

COMMON ERRORS OBSERVED WHILE COMPILING ACF BY BRANCHES

Difference between deduction column & ECGC/CGTSI Coverage

Under deduction column, amount already appropriation reduces NET Balance in NPA received pending

In case of FITL NPA the IRRD (2311) to be entered in deduction column

as no separate provision is required In few cases the deduction is more than balance outstanding

Under Coverage only the portion guaranteed to that extent no provision required under D1 & D2

Infrastructure - There is a provision to select Y in the ACF 1 provided if it

Normally entire outstanding will not be covered by ECGC/CGTSI In few cases Coverage is more than balance outstanding

is unsecured infrastructure advances to provide @ 20%. The condition is To avail of this benefit of lower provisioning, the banks should have in place an appropriate mechanism to escrow the cash flows and also have a clear and legal first claim on these cash flows Even a/cs with less than Rs.1 lac o/s are marked Y thus attracting critical observations from SCAs Please ensure MOCs for the previous quarters are incorporated by branches.

COMMON ERRORS OBSERVED WHILE COMPILING ACF BY BRANCHES

Branches to strictly follow the Significant Accounting Policy of

the bank:
Recovery in NPA a/cs other than Suit filed and OTS/OCS cases should be appropriated ONLY TOWARDS INTEREST

and to reduce the NPA Balance ONLY AFTER all unserviced

interest is realised.

Similarly Auditors Observed non reversal of unserviced

interest / debiting interest in the account already classified as NPA which are against IRAC norms.

OBJECTIVE OF THIS ACF MEET

Rework December 2011 ACF after rectifying all the
errors in branch ACF and advise the impact on provision requirement Branches to incorporate the corrections both in Master and Stand alone package to avoid repetition of such mistakes in March 2012 Branches to verify their ACF (NPA & Provision) to ensure correctness counterchecked by ROs Ensure ACF prepared for Feb 2012 with all rectifications which should be the base for March 2012 except for changes in March 2012 Ensure that all eligible accounts are rescheduled as per Central Office guidelines.