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Loan Financing in India

NPA Classification      SARFAESI ACT

 

NPA Provisioning

Takeout Finance becoming NPA
Provision to be made as per norms pending its takeover by the other Bank/FI. The same to be reversed after takeover is effected.
Reserves for Exchange Rate Fluctuation Account (RERFA)

The outstanding amount of foreign currency denominated loans (where disbursement was in Indian Rupees) goes up on exchange rate movement of Indian Rupee getting adverse. Correspondingly, the overdue amount and provisioning amount also increases. The underlying assets in such cases should normally be not revalued. If at all valued, the loss if any on revaluation of assets to be booked in the Bank's P/L account. If there is any revaluation gain in the asset due to foreign exchange fluctuation, the same should be treated as provision against the particular asset.

Provisioning for Country Risk
 
Excess Provisioning on sale of Standard Asset / NPAs
* If the sale is in respect of Standard Asset and the Sale consideration is higher than the book value, the excess provision to be credited to P/L account.

*Excess provisions on sale of NPAs may be treated as Tier-II capital subject to the overall ceiling of 1.25% of Risk Weighted Assets. Pl. refer to Master Circular DBOD.No.BP.BC.11/21.06.001/2011-12  dated July 01,2011 on Prudential Guidelines on Capital Adequacy and Market Discipline- New Capital Adequacy Framework (NCAF) and DBOD.No.BP.BC.17/21.01.002/2011-12  dated July 01,2011 on Prudential Guidelines on Capital Adequacy

Loan against NSC eligible for surrender,IVPs,KVPs,Gold ornaments,Life insurance policy,FDR, govt,other security
Provisioning as per the asset classification status
NPA Advance covered by CGTMSE / ECGC Guarantee

No provision towards the Guaranteed portion. The residual portion as per general provisioning guidelines for NPA, taking secured and unsecured portion into account. First, the realizable value of security to be deducted from outstanding balance before calculating the CGTMSE / ECGC Cover.

Advance under rehabilitation package approved by BIFR/ Term Lending Institutions

The provision should continue to be made in respect of dues to the Bank on the existing credit facilities as per their classification.As regards the additional facilities sanctioned as per package finalized by BIFR and / or term lending institutions, provision on additional facilities sanctioned need not be made for a period of one year from the date of disbursement. For units declared as sick as per section IV (Para 2.8) of RPCD circular  RPCD.PLNFS.BC.No. 83/06.02.31/2004-05 Dated 1 March 2005 and where rehabilitation packages/nursing programmes have been drawn by the banks themselves or under consortium arrangements, no provision need be made for a period of one year.

Provisioning for STANDARD ASSETS

* provisioning to be made for the funded outstanding on global loan portfolio basis. The provision on Standard Assets should not be reckoned for arriving at net NPAs and the provision should 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.

* Direct advance to Micro and Small Enterprises (MSEs) at 0.25%

* Advance to Commercial Real Estate (CRE) at 100%

* Housing Loan extended at teaser rates & restructured advances at 2%.

* All other advances at 0.40% which include Medium Enterprises as defined under MSMED Act,2006.

 

General NPA Provisioning Norms

Loss Assets - outstanding 100%
Doubtful Assets (unsecured portion of outstanding) 100%
Doubtful Assets (secured portion of outstanding) 25% (up to 1 yr in doubtful category)
  40% (more than 1 yr &up to 3 yr in doubtful category)
  100% (more than 3 yr in doubtful category)
Sub -Standard ( secured exposure  ) 15% of o/s without allowance for ECGC cover & securities.
Sub -Standard ( unsecured exposure  ) 25% of o/s  without allowance for ECGC cover & securities.

Sub-Standard advance cannot become partly secured &   partly unsecured unlike doubtful ones. It has to be either secured or unsecured. Unsecured exposure is defined as an exposure including all funded and non-funded facilities including underwriting and similar commitments where the realisable value of security as assessed by Bank or RBI valuer is not more than 10% ab initio of the outstanding exposure. Security will mean tangible security properly discharged to the Bank and shall not include intangibles such as general guarantees, state govt. guarantees, comfort letters etc.

For determining the amount of unsecured advances in schedule 9 of the published balance sheet, rights, licenses, authorizations, etc charged to the banks as collateral in respect of projects including infrastructure projects financed by them should not be reckoned as tangible security. However, annuties under Build-operate-transfer(BOT) models in respect of road / highway projects and toll collection rights where there are provisions to compensate the project sponsor if a certain level of traffic is not achieved, as tangible security subject to the condition that bank's right to receive annuities and toll collection rights is legally enforceable and irrevocable.

 Bank should also disclose the total amount of advances for which intangible securities such as charge over rights, licenses, authority etc have been taken as also the estimated value of such intangible collaterals by way of a separate head in ' Notes to Accounts'. This should differentiate such loans from other entirely unsecured loans

* In respect of Infrastructure Lending where certain safeguards such as escrow accounts are available, Such type of Sub-Standard loan accounts will attract a provisioning of total 20% in stead of 25%.

 

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