3. As mentioned in paragraph 20.2.3 in Part – B of this Master Circular, the special asset classification benefit as above have been withdrawn for all restructurings with effect from April 1, 2015 with the exception of provisions related to changes in Date of Commencement of Commercial Operations (DCCO) in respect of infrastructure and non-infrastructure project loans. 28.3.6 Restructuring cases will be taken up by the JLF only in respect of assets reported as Standard, SMA or Sub-Standard by one or more lenders of the JLF. henceforth, the following prudential measures will be applicable: (a) The provisioning in respect of existing loans/exposures of banks to companies having director/s (other than nominee directors of government/financial institutions brought on board at the time of distress), whose name/s appear more than once in the list of wilful defaulters, will be 5% in cases of standard accounts; if such account is classified as NPA, it will attract accelerated provisioning as indicated at para 31.1 above. The change in limits comes pursuant to the Statement on Developmental and Regulatory Policies [2] issued as part of the … This benefit of retention of asset classification on restructuring was not made available to the accounts of borrowers engaged in non-industrial activities except to SME borrowers. 5.3.1 CDR is a non-statutory mechanism which is a voluntary system based on Debtor- Creditor Agreement (DCA) and Inter-Creditor Agreement (ICA). In case of shortfall determined on aggregate basis, the balance should be provided for by debit to Profit and Loss account. The outstanding in the account based on drawing power calculated from stock statements older than three months, would be deemed as irregular. (iii) Banks should provide the option of higher EMI to such borrowers who want to repay the housing loan as per the original repayment period. The Boards of the banks should lay down an approved policy as to what circumstances would be considered extraordinary. iii) The bills discounted under LC favouring a borrower may not be classified as a Non-performing assets (NPA), when any other facility granted to the borrower is classified as NPA. 4.1 The CDR Standing Forum and the CDR Empowered Group will be assisted by a CDR Cell in all their functions. 4.2.10 Advances to Primary Agricultural Credit Societies (PACS)/Farmers’ Service Societies (FSS) ceded to Commercial Banks. There would be no requirement of the account / company being sick, NPA or being in default for a specified period before reference to the CDR system. 7.2 The guidelines to be followed by banks purchasing/ selling non ­performing financial assets from / to other banks are given below. In this regard, the detailed instructions with regard to asset classification and provisioning are as follows: (i) Asset Classification under the Prudential norms on Income Recognition, Asset Classification (IRAC) 2. iv) Promoters' sacrifice and additional funds brought by them should be a minimum of 20 per cent of banks’ sacrifice or 2 per cent of the restructured debt, whichever is higher. 2. to constituents who are not their regular borrowers. Prudential Norms for Conversion of Principal into Debt / Equity. In respect of agricultural advances as well as advances for other purposes granted by banks to PACS/ FSS under the on-­lending system, only that particular credit facility granted to PACS/ FSS which is in default for a period of two crop seasons in case of short duration crops and one crop season in case of long duration crops, as the case may be, after it has become due will be classified as NPA and not all the credit facilities sanctioned to a PACS/ FSS. July 1, 2010 vide circular DBOD.No.Dir.BC.88/13.03.00/2009-10 dated April 9, 2010 on ‘Guidelines on the Base Rate’. Non performing financial assets that may be purchased/ sold; Norms and procedure for purchase/ sale of such financial assets; Valuation procedure to be followed to ensure that the economic value of financial assets is reasonably estimated based on the estimated cash flows arising out of repayments and recovery prospects; Delegation of powers of various functionaries for taking decision on the purchase/ sale of the financial assets; etc. Where NPA Since Date is more than 12 months and up to 24 months from the current date: a. v) Promoter’s contribution need not necessarily be brought in cash and can be brought in the form of de-rating of equity, conversion of unsecured loan brought by the promoter into equity and interest free loans. As regards the regulatory treatment of ‘funded interest’ recognised as income and ‘conversion into equity, debentures or any other instrument’ banks should adopt the following: a) Funded Interest: Income recognition in respect of the NPAs, regardless of whether these are or are not subjected to restructuring/ rescheduling/ renegotiation of terms of the loan agreement, should be done strictly on cash basis, only on realisation and not if the amount of interest overdue has been funded. (b) With a view to discouraging borrowers/defaulters from being unreasonable and non-cooperative with lenders in their bonafide resolution/recovery efforts, banks may classify such borrowers as non-cooperative borrowers9, after giving them due notice if satisfactory clarifications are not furnished. Reinforcement of Regulatory Instructions. (c) Recovery - Once the first two options at (a) and (b) above are seen as not feasible, due recovery process may be resorted to. 15.1 The guidelines issued by the Reserve Bank of India on restructuring of advances (other than those restructured under a separate set of guidelines issued by the Rural Planning and Credit Department (RPCD) of the RBI on restructuring of advances on account of natural calamities) are divided into the following four categories : Guidelines on restructuring of advances extended to industrial units. RBI reiterates these instructions for strict compliance. Thereafter, considering the views of IEC if the JLF decides to go ahead with the restructuring, the same should be communicated to CDR Cell and CDR Cell should submit the restructuring package to CDR EG within a total period of 7 days from receiving the views of IEC. In respect of accounts where there are potential threats for recovery on account of erosion in the value of security or non­-availability of security and existence of other factors such as frauds committed by borrowers it will not be prudent that such accounts should go through various stages of asset classification. Hence, banks are required to estimate the riskiness of unhedged position of their borrowers as per the instructions contained in our circular DBOD.No.BP.BC.85/21.06.200/2013-14 dated January 15, 2014 as well as our circular DBOD.No.BP.BC.116/21.06.200/2013-14 dated June 3, 2014 and make incremental provisions on their exposures to such entities: 5.6 Prudential norms on creation and utilisation of floating provisions, 5.6.1 Principle for creation of floating provisions by banks. separate consortium for working capital and term loans), the lender with the highest AE will convene the JLF. improvement in certain financial ratios after a period of time, say, 6 months or 1 year and so on) would be achieved. Thereafter, the asset classification status will continue to be determined with reference to the date of NPA in the selling bank. The amount of liquidity facility drawn and outstanding for more than 90 days, in respect of securitisation transactions undertaken in terms of our guidelines on securitisation dated February 1, 2006, should be fully provided for. During the intervening period, the usual asset classification norms would continue to apply. The Debtor-Creditor Agreement (DCA) and the Inter-Creditor Agreement (ICA) shall provide the legal basis to the CDR mechanism. A financial asset, including assets under multiple/consortium banking arrangements, would be eligible for purchase/sale in terms of these guidelines if it is a non­ performing asset/non performing investment in the books of the selling bank. Banks are required to adhere to these instructions while designing and maintaining the System. 5.1.2 In conformity with the prudential norms, provisions should be made on the non ­performing assets on the basis of classification of assets into prescribed categories as detailed in paragraphs 4 supra. Amounts held in Interest Suspense Account should not be reckoned as part of provisions. The RBI circular states that in respect of all accounts classified as standard as on February 29, 2020, even if overdue, the moratorium period, wherever granted, shall be excluded by the lender from the number of days past-due for the purpose of asset classification under the IRAC norms. Intra-group business restructuring/mergers/acquisitions and/or takeover/acquisition of the project by other entities/subsidiaries/associates etc. Up to another one year (beyond the two year period quoted at paragraph 1(a) above, i.e., total extension of three years), in case the reason for extension of DCCO is beyond the control of promoters (other than court cases). Further, any such backtracking by a lender might attract negative supervisory view during Supervisory Review and Evaluation Process. It also needs to be emphasised that while one bank may have a better security interest when it comes to one borrower, the case may be vice versa in the case of another borrower. It is further re-iterated that the dispensation at paragraph 4.2.15.3 (ii) is subject to the condition that the application for restructuring should be received before the expiry of period mentioned at paragraph 4.2.15.3 (i) (a) above and when the account is still standard as per record of recovery. The guidelines to be followed by banks/ FIs while selling their financial assets to SC/RC under the Act ibid and investing in bonds/ debentures/ security receipts offered by the SC/RC are given below. A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. Banks should recognise from a risk management perspective that there will be a probability that the loan will not be refinanced by other banks, and should take this into account when estimating liquidity needs as well as stress scenarios; and. 7.4. It should be ensured that the lending institutions complete all the formalities in seeking the approval from BIFR before implementing the package. (iii) The main plank of the scheme is that the bank with the maximum outstanding may work out the restructuring package, along with the bank having the second largest share. 50% of 15%, upfront and the balance within a period of one year. g) Since the legal position regarding bilateral netting is not unambiguously clear, receivables and payables from/to the same counterparty including that relating to a single derivative contract should not be netted. (ii) The banks' IT and MIS system should be robust and able to generate reliable and quality information with regard to their asset quality for effective decision making. No. Format for Computing Countercyclical Provisioning Buffer, Organisational Framework for Restructuring of Advances Under Consortium / Multiple Banking / Syndication Arrangements, A. Present value of total available cash flow (ACF) during the loan life period (including interest and principal) LLR=--------------------------------------------------------------------------------------------------------------------------------------------------- Maximum amount of loan, C-1 Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders:Framework for Revitalising Distressed Assets in the Economy. In all such cases, banks must satisfy themselves about the legal enforceability of the provisions of the tripartite agreement and factor in their past experience with such contracts. Such validations, among other things should check for data type validations, min/max value, exceptions, etc. 26.4 DBS has further updated these reporting requirements vide their circular DBS.OSMOS.No.14703/33.01.001/2013-14 dated May 22, 2014 on ‘Reporting to Central Repository of Information on Large Credits (CRILC)’, which, inter-alia, prescribe that whenever a large borrower's account becomes overdue for 61 days that account is required to be reported to CRILC as SMA-2. For the purpose of this Statement, ‘Gross Advances' mean all outstanding loans and advances including advances for which refinance has been received but excluding rediscounted bills, and advances written off at Head Office level (Technical write off). Therefore, lenders should ensure at the time of credit appraisal that debt of the parent company is not infused as equity capital of the subsidiary/SPV. ii. Banks may determine the pricing of the loans at each stage of the project term loan or refinancing debt facility, commensurate with the risk at each phase of the loan, and such pricing should not be below the Base Rate of the bank; viii. However, if the lead institution faces difficulties in working out the detailed restructuring package, the participating banks / financial institutions should decide upon the alternate institution / bank which would work out the detailed restructuring package at the first meeting of the Empowered Group when the preliminary report of the CDR Cell comes up for consideration. Among the credit category, only exceptional credit losses would be considered as an extra-ordinary circumstance. are also included in the Harmonised Master List of Infrastructure sub-sectors) - will qualify for such refinancing; ii. If the new promoter is a non-resident, and in sectors where the ceiling on foreign investment is less than 51 per cent, the new promoter should own atleast 26 per cent of the paid up equity capital or up to applicable foreign investment limit, whichever is higher, provided banks are satisfied that with this equity stake the new non-resident promoter controls the management of the project; Viability of the project should be established to the satisfaction of the banks. In case the latest balance sheet is not available this break-up value shall be Re.1. Pending disciplinary action by ICAI, the complaints may also be forwarded to the RBI (Department of Banking Supervision, Central Office) and IBA for records. Further, paragraph 29.1 of this Master Circular states that both under JLF and CDR mechanism, the restructuring package should also stipulate the timeline during which certain viability milestones (e.g. The income in respect of unrealised interest which is converted into debentures or any other fixed maturity instrument should be recognised only on redemption of such instrument. 14. In regard to the secured portion, provision may be made on the following basis, at the rates ranging from 25 percent to 100 percent of the secured portion depending upon the period for which the asset has remained doubtful: With a view to bringing down divergence arising out of difference in assessment of the value of security, in cases of NPAs with balance of Rs. In such cases the consequential shift in repayment schedule by equal or shorter duration (including the start date and end date of revised repayment schedule) than the extension of DCCO would also not be considered as restructuring provided all other terms and conditions of the loan remain unchanged or are enhanced to compensate for the delay and the entire project debt amortisation is scheduled within 85%3 of the initial economic life of the project as prescribed in paragraph 10.2 (iii) above; vi. Circular - prudential norms on income recognition, asset classification rules shall placed... Are mutually exclusive and banks ) for system based NPA classification and pertaining. 37.1 banks are resorting to partial and technical write-offs, etc a person/entity/subsidiary/associate.! Category 1 CDR system if specifically recommended by the bank Guarantees, State Government guaranteed exposures will! 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A Quarterly basis and keep the Board shall lay down asset classification rbi and guidelines covering, inter alia objective restructuring! Have adequate members of staff deputed from banks and financial Reconstruction ( )! Of activity as applicable for treatment of the account are serviced as terms! Undertake SDR ; ix should invariably be brought upfront while extending the restructuring benefits the... Separate Head in `` Notes to accounts in the light of these instructions stand still asset classification rbi 7 clause be! The realization of the borrower setting right the irregularities/weaknesses in the light these. Estimated on a portfolio basis their implementation and compared with industry average the floating provisions be... Societies ( FSS ) ceded to commercial real estate to time in good i.e. For other reasons beyond the control of promoters on may 05, 2015 steps... ’ has been communicated separately by IBA to banks applicable here also, as per terms its... 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Risk weight of 25 percentage points such equity must thereafter be classified as investments in the books!

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