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Financial Institutions and Services

Notes
4. Loss Assets: 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. In other words, such an asset is considered uncollectible and of such little
value that its continuance as a bankable asset is not warranted although there may be
some salvage or recovery value.

15.2 Provisioning Norms given by RBI

The following are the key provisioning norms issued by RBI:

(i) General: The primary responsibility for making adequate provisions for any diminution
in the value of loan assets, investment or other assets is that of the bank managements and
the statutory auditors. The assessment made by the inspecting officer of the RBI is furnished
to the bank to assist the bank management and the statutory auditors in taking a decision
in regard to making adequate and necessary provisions in terms of prudential guidelines.
(ii) Loss assets: Loss assets should be written off. If loss assets are permitted to remain in the
books for any reason, 100 percent of the outstanding should be provided for.
(iii) Doubtful assets:
1. 100 percent of the extent to which the advance is not covered by the realisable value
of the security to which the bank has a valid recourse and the realisable value
is estimated on a realistic basis.

2. In regard to the secured portion, provision may be made on the following basis, at
the rates ranging from 20 percent to 100 percent of the secured portion depending
upon the period for which the asset has remained doubtful:
Remained doubtful upto 1 year 20%
One year to three year 30%

More than three year 100%
3. Banks are permitted to phase the additional provisioning consequent upon the
reduction in the transition period from substandard to doubtful asset from 18 to 12
months over a four year period commencing from the year ending March 31, 2005,
with a minimum of 20 % each year.
(iv) Sub-standard Assets
1. A general provision of 10 percent on total outstanding should be made without
making any allowance for ECGC guarantee cover and securities available.
2. The ‘unsecured exposures’ which are identified as ‘substandard’ would attract
additional provision of 10 per cent, i.e., a total of 20 per cent on the outstanding
balance. The provisioning requirement for unsecured ‘doubtful’ assets is
100 per cent.

Did u know? What is the meaning of unsecured exposure?
Unsecured exposure is defined as an exposure where the realisable value of the security,
as assessed by the bank/approved valuers/Reserve Bank’s inspecting officers, is not more
than 10 percent, ab-initio, of the outstanding exposure.

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