IDENTIFICATION OF NPA

The core of banking despite structural changes that have taken place – continues
to be accepting of deposits from depositors for the purpose of lending. So
basically Banking = lending. This process of intermediation involves: -

• Management of asset liability maturity mismatches

• Management of quantity mismatches, and
• Management of default risks

Any lending does have an inherent risk of DEFAULT. It is the default risk that
gives rise to bad debts or Non Performing Assets in Banks & Financial Institutes.
The default risk in an advance account emanates from the customer himself
(specific) and / or from the markets where he operates in (general).

For long, banks in India were booking income from advances on “accrual basis”
rather than on cash basis. Interest were charged to accounts periodically and
booked as profit irrespective of the fact it is recovered. Classification of impaired
assets was done on subjective consideration rather than any objective criteria. The
norms for provisioning for bad debts were also not uniform.

The policy of income recognition should be objective and based on record of

recovery rather than on any subjective considerations. Likewise, the classification
of assets of banks has to be done on the basis of objective criteria which would
ensure a uniform and consistent application of the norms. Also, the provisioning
should be made on the basis of the classification of assets based on the period for
which the asset has remained non-performing and the availability of security and
the realisable value thereof.

Banks are required to ensure that while granting loans and advances, realistic
repayment schedules may be fixed on the basis of cash flows with borrowers. This
would go a long way to facilitate prompt repayment by the borrowers and thus
improve the record of recovery in advances.

The “Committee on Financial Systems” set up by RBI in 1991 recommended inter-

alia that Income Recognition, Asset Classification (IRAC) and Bad debt
provisioning should conform to international standards. Following
recommendations of this Committee, popularly known as Narasimham
Committee after the name of its chairman Shri M. Narasimham, the RBI has
introduced the prudential norms on Income Recognition, Asset Classification and
Provisioning pertaining to advances in a phased manner beginning 31st March
1993. Revised IRAC norms and provision requirements are given below;
Asset classification and provision requirement

Standard Assets: -

In standard assets when irregularities / out of order position persist beyond 30

days, they are classified as ‘Watch Category” assets under Asset Code 12. When
such irregularities / out of order position continue beyond 90 days such advances
(except dues of direct agricultural advances) become NPA.

Definition of an NPA: -

a> An asset including leased asset, becomes non-performing when it ceases to

generate income for the Bank i.e. NON PAYING ASSETS.

b> Non Performing asset (NPA) is a loan or an advance where;

i) interest and / or installment of principal remain overdue for a period of

more than 90 days in respect of a term loan,

ii) the bill remains overdue for a period of more than 90 days in the case of
bills purchased and discounted,

iii) the account remains ‘out of order’ in respect of an Overdraft / Cash Credit
(OD/CC) A/c where the <1> outstanding balance remains continuously in
excess of the sanctioned limit / drawing power OR <2> where the
outstanding balance in the principal operating account is less than the
sanctioned limit / drawing power, but there are no credits continuously for
90 days as on the date of Balance Sheet OR <3> credits are not enough to
cover the interest debited during the same period than such accounts
should be treated as 'out of order'.

iv) the installment of principal or interest thereon remains overdue for two
crop seasons for short duration crops,

v) the installment of principal or interest thereon remains overdue for one

crop season for long duration crops.

c> Banks should, classify an account as NPA only if the interest charged during
any quarter is not serviced fully within 90 days from the end of the quarter.

d> Any amount due to the bank under any credit facility is ‘overdue’ if it is not
paid on the due date fixed by the bank.

e> Any amount to be received (like card usages, debits in suspense a/c etc)
remains overdue for a period more than 90 days in respect of any other
accounts.
 f> Stock or book-debt statements relied upon by the banks for determining
drawing power should not be older than three months. The outstanding in the
account based on drawing power calculated from stock statements older than
three months, would be deemed as irregular. A working capital borrowal
account will become NPA if such irregular drawings are permitted in the
account for a continuous period of 90 days even though the unit may be
working or the borrower's financial position is satisfactory.

g> Regular and ad hoc credit limits need to be reviewed / regularised not later
than three months from the due date / date of ad hoc sanction. In any case,
delay beyond six months is not considered desirable as a general discipline.
Hence, 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 will be treated as NPA.

Classification of NPA and Provision Norms:

Once the account becomes NPA as explained above, the account goes through a
process of ageing where the asset classification shall progressively deteriorate and
the required provision will proportionately increase in a graded system. The
parking period in various stages of this process and resultant provision
requirement in each stage is explained below:-

Substandard Assets:-

The first stage of NPA is ‘Substandard Asset’ which constitutes Asset Code 20.
The parking period is 12 months in this stage of NPA.

(a) Substandard – secured exposure – Code 21 – provision at 20% of

outstanding dues (w.e.f. 31.12.2007) as per our Bank’s norms
(b) Substandard – unsecured exposure – Code 22 – provision at 20% of
outstanding dues

Code 21 and 22 (a and b) together shall constitute the substandard category of

Code 20 in CA 19 and CCIS returns.

A general provision of 20 percent on total outstanding should be made without

making any allowance for ECGC/CGTMSE guarantee cover and securities
available.

The ‘unsecured exposures’ which are identified as ‘substandard’ would also

attract a provision of 20 per cent on the outstanding balance.

Unsecured exposure is defined as an exposure where the realisable value of the

security [RVS], as assessed by the bank / approved valuers / Reserve Bank’s
inspecting officers, is not more than 10 percent, ab-initio, of the outstanding
exposure. ‘Exposure’ shall include all funded and non-funded exposures
(including underwriting and similar commitments). ‘Security’ will mean tangible
 security properly discharged to the bank and will not include intangible securities
like guarantees, comfort letters etc.
Doubtful category: -

It consists of 3 stages Doubtful I, Doubtful II and Doubtful III where there is no

change in parking period from the existing pattern. The provision requirement for
Doubtful I and Doubtful II also remains unchanged as follows: -

Doubtful I (Code 31) – for a period of 12 months in Doubtful category –

Our Bank’s guidelines-- 100% provision to be maintained for all D1 and D2
accounts as on 31.03.2009 not repaid/upgraded so far.
50% provision on secured portion and 100% provision on unsecured portion
on accounts slipped to D1 during the year.
RBI guidelines--20% provision on secured portion and 100% provision on
unsecured portion

Doubtful II (Code 32) – for a period of further 24 months in Doubtful category –

Our Bank’s guidelines-- 100% provision to be maintained for all D1 and D2
accounts as on 31.03.2009 not repaid/upgraded so far.
60% provision on secured portion and 100% provision on unsecured portion
on accounts slipped to D2 after 31.03.2010. (100% provision to be maintained
RBI guidelines--30% provision on secured portion and 100% provision on
unsecured portion on accounts which have slipped from D1 to D2 category
during the year)

Doubtful III (Code 33) - As per the instructions from RBI, all advances classified as
doubtful for more than 3 years (i.e. entering Doubtful III category) provision
requirement shall be 100% of outstanding.

Loss Assets – Code 40

A loss asset is one where loss has been identified by Bank or internal or external
auditors or RBI inspectors but the amount has not been fully written off. Such an asset is
considered uncollectible and of such little value that its continuance is not warranted,
even though there may be some small (less than 10%) salvage recovery value. The
provision requirement is 100% for such loss assets. (Same as per existing system).

Government guaranteed advances:-

From 31.03.2005, the IRAC and Provisioning norms for facilities guaranteed by
Central Government or State Governments are different. New norms are given
below:
a) Advances guaranteed by Central Government –

Accounts shall be classified as NPA only when the guarantee is invoked and the
same is repudiated by the Central Government. However, income should not be
recognized till the same is actually realised (same as existing norms).
 b) Advances guaranteed by State Government (revised norms) –

Accounts shall be classified as NPA as in the case of all other normal advances
when the account becomes irregular irrespective of the availability or invocation
of State Government Guarantee. W.e.f. 31.3.2005, delinquency norms shall be
180 days i.e. interest/installment/any other amount remains over due for a period
of more than 180 days. W.e.f. 31.3.2006 delinquency shall be reduced to 90 days
as in the case of normal advances.

Income should not be recognised till the same is not actually realised.

Provision requirement in Guaranteed Advances (ECGC/CGTMSE)

In case of advances in Doubtful and Loss category guaranteed by ECGC,

CGTMSE etc. provision should be made only for balance in excess of amounts
guaranteed by the corporations. In case of substandard assets, 20% (for secured as
well as unsecured accounts) of the outstanding balance without making any
allowance for ECGC / CGTMSE coverage should be provided for.
Example

Outstanding Balance Rs. 4 lakhs

ECGC Cover 50 percent
Period for which the advance has More than 3 years remained doubtful (as on
remained doubtful March 31, 2010)

Value of security held Rs. 1.50 lakhs

Provision required to be made

Outstanding balance Rs. 4.00 lakhs

Less: Value of security held Rs. 1.50 lakhs
Unrealised balance Rs. 2.50 lakhs
Less: ECGC Cover
Rs. 1.25 lakhs
(50% of unrealisable balance)
Net unsecured balance Rs. 1.25 lakhs
Rs. 1.25 lakhs (@ 100 percent of
Provision for unsecured portion of advance
unsecured portion)
Provision for secured portion of advance i.e.Rs.1.50 lakhs (@ 100 per cent of the
on March 31, 2010) secured portion)
Total provision to be made Rs.2.75 lakhs (as on March 31, 2010

Advance covered by CGTMSE guarantee

In case the advance covered by CGTMSE guarantee becomes nonperforming, no

provision need be made towards the guaranteed portion. The amount outstanding
in excess of the guaranteed portion should be provided for as per the extant
 guidelines on provisioning for nonperforming advances. Two illustrative
examples are given below:

Example I

Asset classification status: Doubtful – More than 3 years (as on March 31, 2010)

75% of the amount outstanding or 75% of the

CGTMSE Cover
unsecured amount.
Realisable value of Security Rs.1.50 lakh
Balance outstanding Rs.10.00 lakh
Less Realisable value of
Rs. 1.50 lakh
security
Unsecured amount Rs. 8.50 lakh
Less CGTMSE cover (75%) Rs. 6.38 lakh
Net unsecured and uncovered Rs. 2.12 lakh
portion:
Provision Required
(as on March 31,
2010)
Secured portion Rs.1.50 lakh Rs. 1.50 lakh (@ 100%)
Unsecured & uncovered Rs.2.12 lakh
Rs. 2.12 lakh (100%)
portion
Total provision required Rs. 3.62 lakh

Example II

Asset classification status Doubtful – More than 3 years (as on March 31, 2010)
75% of the amount outstanding or 75% of the
CGTMSE Cover
unsecured amount
Realisable value of Security Rs.10.00 lakh
Balance outstanding Rs.40.00 lakh
Rs. 10.00 lakh
Less Realisable value of security
Unsecured amount Rs. 30.00 lakh
Less CGTMSE cover (75%) Rs. 18.75 lakh
Net unsecured and uncovered Rs. 11.25 lakh
portion:
Provision Required
(as on March 31, 2010)
Secured portion Rs.10.00 lakh Rs. 10.00 lakh (@ 100%)
Unsecured & uncovered portion Rs.11.25 lakh Rs.11.25 lakh (100%)
Total provision required Rs. 21.25 lakh
Standard assets

(i) Banks should make general provision for standard assets at the following rates for the
funded outstanding on global loan portfolio basis:

No. Category of standard asset Rate of provisioning

a Direct advances to agricultural and SME sectors 0.25 %
b Commercial real estate loans 1.00 %
c All other loans and advances not included in a and b above 0.40%

(ii) The provisions on standard assets should not be reckoned for arriving at net NPAs.
(iii) The provisions towards Standard Assets need not be netted from gross advances but
shown separately as 'Contingent Provisions against Standard Assets' under 'Other
Liabilities and Provisions - Others' in Schedule 5 of the balance sheet.

Conclusion:
The gist of the revised provision requirements is that an impaired asset from the
date of becoming NPA, shall reach asset code 31 (Doubtful I category) in 12
months and then as per BANK OF INDIA guidelines we shall require 100%
provision irrespective of value of security available. This will be a severe drain on
the profitability of the Bank.

Thus all out efforts should be made to recover the dues in stressed assets in the
early stages of the NPA movement cycle through SRFAESI action or compromise
route at the earliest, so that the 100% provision requirement can be averted.

On the other hand, timely restructuring / rescheduling of the advances while

they are in Watch Category shall prevent the account becoming NPA. By
restructuring the advances in the initial stages of NPA, we may be able to upgrade
the same after the specified period. Let us intensify our efforts for REDUCTION
OF NPA WITHOUT ACCRETION.

Thus the movement of NPA will be as below:-

Irregularities beyond 30 days & upto 90 days – watch category accounts (ASH Code 12)
Thereafter 12 months – Substandard (ASH Code 20 – now divided to 21 or 22 depending
on secured / unsecured exposure
Thereafter 12 months – Doubtful I (ASH Code 31)
Thereafter 24 months – Doubtful II (ASH Code 32)
After 24 months in D II (or total 48 months after becoming NPA) a/c moves to D III
category (ASH Code33)

Loss assets (Asset Code 40) - Provision requirement – 100%

Revised guidelines in respect of Farmers in Distress:-

“In terms of the Circular No.RPCD:Plan:BC.92:04.09.01:2004-05

dated 24.6.2004 in case of farmers in distress, banks may restructure crop loans
and agricultural term loans only in respect of the overdue installments including
interest thereon as on March 31, 2004. The farmers whose loans have been
restructured as above will become eligible for fresh loans and the
rescheduled/restructured loans as also the fresh loans to be issued to the farmers
may be treated as current dues and need not be classified as NPA. While the fresh
loans would be governed by the NPA norms as applicable to agricultural loans,
the NPA norms would be applicable to the rescheduled/restructured loans only
from the third year onwards, i.e. on completion of the initial moratorium period of
two years.”
In normal cases, as per RBI Master Circular on IRAC norms, all
facilities granted by Bank to borrower will have to be treated as NPA even if one
facility or part thereof has become irregular. However, RBI has now clarified that
these guidelines relating to borrower-wise classification of NPA norms would not
be applicable to restructured loans as on 31.3.2004 under natural calamities in
terms of the Government's announcements on June 18, 2004 as this is a one time
measure allowing restructuring of debt outstanding as on 31.3.2004 in case of
farmers under distress and farmers in arrears.
In case of farmers in distress, all fresh loans as well as rescheduled
existing loans (NPAs) will become current dues (standard asset) and NPA norms
will be applicable to rescheduled loans from third year (i.e. after completion of
initial 2 year moratorium) and fresh loans will be governed by normal NPA norms
for agricultural advances. In case of farmers in arrears, the fresh loans will be
standard assets and shall be governed by normal NPA norms for agricultural
advances whereas the existing classification (NPA) shall continue in the
restructured / rescheduled portion.
Banks will hold provision against the restructured advances as per the existing
provisioning norms.
Provision for diminution in the fair value of restructured advances
(i) Reduction in the rate of interest and / or reschedulement of the repayment of principal
amount, as part of the restructuring, will result in diminution in the fair value of
the advance. Such diminution in value is an economic loss for the bank and will
have impact on the bank's market value of equity. It is, therefore, necessary for
banks to measure such diminution in the fair value of the advance and make
provisions for it by debit to Profit & Loss Account. Such provision should be held
in addition to the provisions as per existing provisioning norms as indicated in
para above, and in an account distinct from that for normal provisions.
For this purpose, the erosion in the fair value of the advance should be computed
as the difference between the fair value of the loan before and after restructuring.
Fair value of the loan before restructuring will be computed as the present value
of cash flows representing the interest at the existing rate charged on the advance
before restructuring and the principal, discounted at a rate equal to the bank's
BPLR as on the date of restructuring plus the appropriate term premium and
credit risk premium for the borrower category on the date of restructuring. Fair
 value of the loan after restructuring will be computed as the present value of cash
flows representing the interest at the rate charged on the advance on restructuring
and the principal, discounted at a rate equal to the bank's BPLR as on the date of
restructuring plus the appropriate term premium and credit risk premium for the
borrower category on the date of restructuring.
The above formula moderates the swing in the diminution of present value of
loans with the interest rate cycle and will have to follow consistently by banks in
future. Further, it is reiterated that the provisions required as above arise due to
the action of the banks resulting in change in contractual terms of the loan upon
restructuring which are in the nature of financial concessions. These provisions
are distinct from the provisions which are linked to the asset classification of the
account classified as NPA and reflect the impairment due to deterioration in the
credit quality of the loan. Thus, the two types of the provisions are not substitute
for each other.
(ii) In the case of working capital facilities, the diminution in the fair value of the cash
credit / overdraft component may be computed as indicated in para (i) above,
reckoning the higher of the outstanding amount or the limit sanctioned as the
principal amount and taking the tenor of the advance as one year. The term
premium in the discount factor would be as applicable for one year. The fair value
of the term loan components (Working Capital Term Loan and Funded Interest
Term Loan) would be computed as per actual cash flows and taking the term
premium in the discount factor as applicable for the maturity of the respective
term loan components.
(iii) In the event any security is taken in lieu of the diminution in the fair value of the
advance, it should be valued at Re.1/- till maturity of the security. This will ensure
that the effect of charging off the economic sacrifice to the Profit & Loss account
is not negated.
(iv)The diminution in the fair value may be re-computed on each balance sheet date till
satisfactory completion of all repayment obligations and full repayment of the
outstanding in the account, so as to capture the changes in the fair value on
account of changes in BPLR, term premium and the credit category of the
borrower. Consequently, banks may provide for the shortfall in provision or
reverse the amount of excess provision held in the distinct account.
(v) If due to lack of expertise / appropriate infrastructure, a bank finds it difficult to
ensure computation of diminution in the fair value of advances extended by small
/rural branches, as an alternative to the methodology prescribed above for
computing the amount of diminution in the fair value, banks will have the option
of notionally computing the amount of diminution in the fair value and providing
therefor, at five percent of the total exposure, in respect of all restructured
accounts where the total dues to bank(s) are less than rupees one crore till the
financial year ending March 2011. The position would be reviewed thereafter.
The total provisions required against an account (normal provisions plus
provisions in lieu of diminution in the fair value of the advance) are capped at
100% of the outstanding debt amount.
 NPA – ASSET CLASSIFICATION AND PROVISION IN ‘CBS’

As all the branches of the Bank have now migrated to the CBS platform,
we are now well poised to move towards systems and procedures which are
entirely driven by the CBS system with least or no manual intervention. Just
before the quarterly closing September, 2009 the field of “NPA date” was frozen
and on the basis thereof a system driven exercise was carried out for Asset
Classification and provisioning. Based on the experience during the quarterly
closing, September, 2009, we have fine tuned the exercise of Asset classification
of advances and calculation of Provision in NPA accounts. The revised exercise is
proposed to be implemented through the CBS system from the ensuing quarterly
closing December 2009 in the manner detailed below:-

RECOGNISING NPA

In order to mark a Customer/Borrower as NPA, two new menus NPADATE

and MNPADATE were introduced in September’09. Once a customer/borrower
has been identified as NPA, the branch is required to enter the ‘‘NPA Since’’ date
and “Interest Ceased Date” in the menu NPADATE in Finacle.

To determine the correct Asset Classification of an NPA customer/borrower

the following two aspects are important:

• ‘‘NPA Since’’ date and

• “Value of Security” as given in CCIS at account level.

IMPORTANT DEFINITIONS

• RVS: Value of Security (Realisable Value of Security) for the purpose of reckoning
NPA is the sum total of the amounts entered in following fields of CCIS-A for
each account of the customer/borrower:

o Value of Principal (Primary) Security

o Value of Security, other than Primary Security

o Value of Credit / Cash Margin

o Value of Guarantee {only of the Nature of Guarantee Cover

obtaining in the account i.e. 3(ECGC), 4(DICGC), and
7(CGTMSE)}
 • Net Outstanding : Outstanding amount for this purpose is treated as the
amount of Total Outstanding less the amount of Un-realised Interest
(URI) which is termed as “Net Outstanding”. The URI should be entered in
CCIS-A in the following two fields:

¾ Interest charged but not recovered (Previous URI)

¾ Current URI (We are working on populating this amount from the
system itself. However, till this is done, the amount will have to be
entered by the branches.)

ASSET CLASSIFICATION

Based on the data entered in “NPA Since” and “value of Security” fields in
Finacle, Asset Classification of accounts would be determined as under :-

1. Where ‘‘NPA Since’’ date is less than 12 months from the current date:

a. Asset code will be determined as 21 if the value of security is 100% or

more of the Net Outstanding of the customer / borrower.

b. Asset code will be determined as 22 if the value of security is less than

100%, but not less than 50% of the Net Outstanding of customer /
borrower.

c. Asset code will be determined as 31 if the value of security is less than

50%, but not less than 10% of the Net Outstanding of the customer /
borrower.

d. Asset code will be determined as 40 if the value of security is less than

10% of the Net Outstanding of the customer / borrower.

2. Where ‘‘NPA Since’’ date is more than 12 months but less than 24 months
from the current date:

a. Asset code will be determined as 31 if the value of security is not less

than 10% of the Net Outstanding of the customer / borrower.

b. Asset code will be determined as 40 if the value of security is less than

10% of the Net Outstanding of the customer / borrower.

3. Where ‘‘NPA Since’’ date is more than 24 months but less than 48 months
from the current date:

a. Asset code will be determined as 32 if the value of security is not less

than 10% of the Net Outstanding of the customer / borrower.
 b. Asset code will be determined as 40 if the value of security is less than
10% of the Net Outstanding of the customer / borrower.

4. Where ‘‘NPA Since’’ date is more than 48 months from the current date, Asset
Code will be determined as 33. However, Asset code will be determined as
40 if the value of security is less than 10% of the Net Outstanding for the
customer / borrower.

5. Irrespective of the age of NPA arrived at on the basis of ‘‘NPA Since’’ date
and the amount of security, Asset Code 40 can be assigned by the branches to
any customer/borrower in cases of frauds, etc. with the help of the menu
MEAC. Asset Code 40 assigned to the Customer / borrower through menu
MEAC would not get changed by the asset classification programme which
would be run on the last day of the month by the Data Center for updating the
asset codes in the system on the basis of ageing of NPAs.

6. Branches need to exercise care and sufficient precaution while classifying

accounts under Asset Code 40. Please take a careful note that if a Customer
has been erroneously given asset code 40 either through menu MEAC by the
user/s at the branch level or the system has determined the asset code as 40
(due to insufficient / nil security), the asset classification programme would
bypass this category and the asset code would remain as 40 even after running
the Asset Classification and Provisioning Programme. Correction, if required,
in such cases can be done in the following manner:

a. Remove the ‘‘NPA Since’’ date and the Interest Ceased date in menu
MNPADATE. Please ensure to note these two dates separately on a
piece of paper before deleting them in the system.

b. Enter correct Values of security in relation to the Net Outstanding of

the Customer / Borrower in CCIS-A.

c. Enter the ‘‘NPA Since’’ date and the Interest Ceased date in menu
NPADATE.

CARE:

1) Please note that step a and c are to be done by the Primary SOL of
the Cust-ID (displayed on the first screen of CUMM), immediately
one after the other, and in no case on two separate days, as
removing the NPA date will make the account as standard and the
system would start charging interest.

2) Entry in menus NPADATE and MNPADATE requires verification.

If verification of the same remains pending, the system would not
allow CSOLOP for the branch.
 3) Following User work class are eligible for using NPA menus:

NPADATE – MODIFICATION - Work class 250 onwards

NPADATE – VERIFICATION - Officers with work class 550 onwards
MNPADATE – MODIFICATION - Work class 250, and work class 600
onwards
MNPADATE–VERIFICATION - Officers with work class 600 onwards.

CALCULATION OF PROVISION IN NPA ACCOUNTS

The System, after determining Asset Classification of the Customer /

borrower proceeds to calculate the amount of Provision (on the basis of NPA Date
and Value of Security as explained above) on the Net Outstanding amount for
each of the fund based accounts having debit balance.

Please note that for assigning the asset code, total amount of security
entered at account level in CCIS-A is considered. However, while calculating
amount of provision, amount of security entered separately at each account
level in CCIS-A is considered while arriving at secured / unsecured position.

For example, if the Customer/borrower is classified under Asset Code 31

and RVS is sufficient to cover the entire outstanding of the customer and in one of
the accounts security is not entered at all (whereas in another account entire
security value is entered); provision will be correctly calculated for the account
with security but in the account without security, the shortfall will be taken into
account for calculating amount of provision.

Branches can also check details of their current NPA Provision at anytime
by using menu CCISPROV in Finacle DR. Provision calculation for quarterly
closing would be done by Data center on the last day of the quarter after updating
the asset codes. The same would also be updated in the Provision field of each
account in CCIS-A, and would be reflected in CA19 reports. Branches are
advised to exercise due care as CA-19 of the branch would not be generated if any
NPA account is not entered in CCIS menu, even though it is present in CBS
System.
Care should be taken to enter correct amount in both the URI fields as they
are reduced from total outstanding to arrive at net outstanding and they are also to
be balanced with SUNCR accounts - 31 and 32. If URI is equal to or more than
Outstanding, NIL provision will be calculated.
Provision calculation is done in the following manner:

Asset Code Provision calculated on Provision amount

21 Net Outstanding 20% of Net Outstanding

22 Net Outstanding 20% of Net Outstanding

31 (31 as on 31-03-2009) Net Outstanding 100% of Net Outstanding

31 (After 31-03-2009) Net Outstanding (in case of 20% of Net Outstanding

RVS being equal to
or more than Net
Outstanding )

31 (After 31-03-2009) RVS 20% of RVS

(in case RVS being less than Plus 100% of the Unsecured
Net Outstanding) portion (Net
Outstanding less
RVS)

32 (31 as on 31-03-2009) Net Outstanding 100% of Net Outstanding

32 (31 after 31-03-2009) Net Outstanding (in case of 30% of Net Outstanding
RVS being equal to
or more than Net
Outstanding )

32 (31 after 31-03-2009) RVS 30% of RVS

(in case RVS being less than Plus 100% of the Unsecured
Net Outstanding) portion (Net
Outstanding less
RVS)

33 Net Outstanding 100% of Net Outstanding

40 Net Outstanding 100% of Net Outstanding

 Accounting of Unrealised Interest
in NPA accounts through System
You are aware that w.e.f. 01.04.2010 if an account becomes NPA, the accounting
of Unrealised Interest is being done through system only. Accordingly Head
Office IT department has developed a separate menu for accounting of Unrealised
Interest.

Present Practice
2. Presently branches are passing following entries manually to de-recognize the
Interest in the NPA account.
DR - P&L Interest
CR - SUNCR 31

On recovery in the NPA accounts following entries are passed

DR - SUNCR 31
CR - P&L Interest

Revised System Driven Procedure w.e.f. 01.04.2010

3. It has now been decided to maintain Unrealized Interest only through system for
all accounts which will be classified NPA on or after 01.04.2010. Once the
account is classified / marked as NPA in the System, branches should execute
MAPD Menu to account for unrealized interest. The system will pass the entry.

DR - P&L Interest
CR - SUNCR 32.

4. Please note that if this menu option is not executed by the branches, the
CSOLOP would halt for that day. We repeat that branches should not pass
any manual vouchers as it would result in double reversal of Unrealised
Interest.

5. When recovery is received in a NPA account, the system will reverse the
unrealized interest. As per NPA Management Policy normal recovery in NPA
accounts is to be appropriated first towards Unrealized Interest. If the recovery is
not sufficient to cover the full unrealized interest, the system will continue to
reverse the unrealized interest with successive recovery till full amount of
unrealized interest is recovered. Branches should not pass any voucher for
reversal of the unrealized interest.

The system will pass the entry:-

DR- SUNCR 32
CR - P&L Interest .
6. When a NPA account is upgraded to a ‘Standard Asset’ the branches should
execute RPDA Menu (Re-transfer Past Due accounts). With the execution of
RPDA Menu, balance under URI, if any pertaining to the concerned account
would get reversed to P&L A/c – Interest through System. Branches should note
that RPDA Menu should be executed in those accounts where in the past MAPD
Menu was executed to transfer Unrealized Interest as mentioned under para-3.

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Updated 31.08.2010