Page 212 - DCOM208_BANKING_THEORY_AND_PRACTICE

Unit 13: Non Performing Assets

would attract a uniform provisioning requirement of 0.25 per cent of the funded Notes
outstanding on a portfolio basis, as hitherto.
Further, with effect from Dec 8, 2009, all UCBs (Both Tier I & Tier II) are required to make
a provision of 1.00 percent in respect of advances to Commercial Real Estate Sector classified
as ‘standard assets’.

The standard asset provisioning requirements for all UCBs are summarized as under:

Table 13.1: Standard Asset Provisioning Requirements for all UCBs

Category of Standard Asset Rate of Provisioning
Tier II Tier I
Direct advances to Agriculture and SME sectors 0.25% 0.25%
Commercial Real Estate (CRE) sector 1.00% 1.00%
All other loans and advances not included in (a) and (b) above 0.40% 0.25%
Source: http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=7370#cla
(c) The provisions towards “standard assets” need not be netted from gross advances but
shown separately as “Contingent Provision against Standard Assets” under “Other Funds
and Reserves” (item.2) (viii) of Capital and Liabilities} in the Balance Sheet.
(d) If due to changes in the regulatory requirements on provisions to be maintained by banks,
the provisions held by banks exceed what is required to be held by banks, such excess
provisions should not be reversed. In future, if by applying the revised provisioning
norms, any provisions are required over and above the level of provisions currently held
for the standard category assets; these should be duly provided for.
(e) In case banks are already maintaining excess provision than what is required/prescribed
by Statutory Auditor/RBI Inspection for impaired credits under Bad and Doubtful Debt
Reserve, additional provision required for Standard Assets may be segregated from Bad
and Doubtful Debt Reserve and the same may be parked under the head “Contingent
Provisions against “Standard Assets” with the approval of their Board of Directors. Shortfall
if any, on this account may be made good in the normal course.
(f) The above contingent provision will be eligible for inclusion in Tier II capital.

13.4.2 Sub-standard Assets

A general provision of 10 per cent on total outstanding should be made without making any
allowance for DICGC/ECGC guarantee cover and securities available.

13.4.3 Doubtful Assets

Following are the provisions for doubtful assets:
(a) Provision should be for 100 per cent of the extent to which the advance is not covered by
the realizable value of the security to which the bank has a valid recourse should be made
and the realizable value is estimated on a realistic basis.
(b) In regard to the secured portion, provision may be made on the following basis, at the
rates ranging from 20 per cent to 100 per cent of the secured portion depending upon the
period for which the asset has remained doubtful:

LOVELY PROFESSIONAL UNIVERSITY 207