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Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances
March, 20th 2015
                          
  __________________RESERVE BANK OF INDIA _________________
                                                        www.rbi.org.in
RBI/2014-15/74
DBOD.No.BP.BC.9/21.04.048/2014-15                                                                                     July 1, 2014



All Commercial Banks (excluding RRBs)

Dear Sir


Master Circular - Prudential norms on Income Recognition, Asset Classification and
Provisioning pertaining to Advances

Please refer to the Master Circular No. DBOD.No.BP.BC.1/21.04.048/2013-14 dated July 1,
2013 consolidating instructions / guidelines issued to banks till June 30, 2013 on matters
relating to prudential norms on income recognition, asset classification and provisioning
pertaining to advances.




2. The Master Circular has now been suitably updated by incorporating instructions issued
up to June 30, 2014 and is attached. It has also been placed on the RBI web-site
(http://www.rbi.org.in). We advise that this revised Master Circular consolidates the
instructions contained in the circulars listed in the Annex 7.


Yours faithfully




(Rajesh Verma)
Chief General Manager-in-Charge

Encl.: As above




                    , 
                                                          , 12  ,      ,  ­ 400001
 Department of Banking Operations and Development, Central Office, 12th Floor, Central Office, Shahid Bhagat Singh Marg, Mumbai - 400001
                            Tel No: 22661602 Fax No: 22705691 Email ID: cgmicdbodco@rbi.org.in

                                                      ,                    
 MASTER CIRCULAR - PRUDENTIAL NORMS ON INCOME RECOGNITION, ASSET
     CLASSIFICATION AND PROVISIONING PERTAINING TO ADVANCES

                             TABLE OF CONTENTS

                                                                                 Page
Para No.              Particulars
                                                                                  No.
PART A
                      GENERAL
  1                                                                               1
                      DEFINITIONS
  2                                                                               1
       2.1            Nonperforming assets                                        1
       2.2            `Out of Order\' status                                       2
       2.3            `Overdue\'                                                   2
                      INCOME RECOGNITION
  3                                                                               2
       3.1            Income recognition policy                                   2
       3.2            Reversal of income                                          3
       3.3            Appropriation of recovery in NPAs                           3
       3.4            Interest Application                                        3
       3.5            Computation of NPA levels                                   4
                      ASSET CLASSIFICATION
  4                                                                               4
       4.1            Categories of NPAs                                          4
             4.1.1    Substandard Assets                                          4
             4.1.2    Doubtful Assets                                             4
             4.1.3    Loss Assets                                                 4
       4.2            Guidelines for classification of assets                     4
                      Availability of security / net worth of borrower/
             4.2.3                                                                5
                      guarantor
             4.2.4    Accounts with temporary deficiencies                        5
             4.2.5    Upgradation of loan accounts classified as NPAs             6
                      Accounts regularised near about the balance sheet
             4.2.6                                                                6
                      date
                      Asset Classification to be borrower wise and not
             4.2.7                                                                6
                      facility-wise
             4.2.8    Advances under consortium arrangements                      8
             4.2.9    Accounts where there is erosion in the value of security
             4.2.10   Advances to PACS/FSS ceded to Commercial Banks               9
             4.2.11   Advances against Term Deposits, NSCs, KVP/IVP, etc           9
             4.2.12   Loans with moratorium for payment of interest                9
             4.2.13   Agricultural advances                                        9
             4.2.14   Government guaranteed advances                              10
             4.2.15   Projects under implementation                               10
             4.2.16   Takeout Finance                                             18
             4.2.17   Post-shipment Supplier\'s Credit                             18
             4.2.18   Export Project Finance                                      18
                      Advances under rehabilitation approved by BIFR/ TLI
             4.2.19                                                               19
                      Transactions Involving Transfer of Assets through
             4.2.20   Direct Assignment of Cash Flows and the Underlying          19
                      Securities
            4.2.21   Credit Card Accounts                                        21
                     PROVISIONING NORMS
5                                                                                21
     5.1             General                                                     21
     5.2             Loss assets                                                 21
     5.3             Doubtful assets                                             22
     5.4             Substandard assets                                          22
     5.5             Standard assets                                             23
     5.6             Floating provisions                                         25
     5.7             Provisions for advances at higher than prescribed rates     26
     5.8             Provisions on Leased Assets                                 26
     5.9             Guidelines for Provisions under Special Circumstances       27
     5.10            Provisioning Coverage Ratio                                 32
                     GUIDELINES ON SALE OF FINANCIAL ASSETS TO
                     SECURITISATION COMPANY (SC)/
6                                                                                33
                     RECONSTRUCTION COMPANY (RC)

     6.1             Scope                                                       33
     6.2             Structure                                                   33
     6.3             Financial assets which can be sold                          34
                     Procedure for sale of banks\'/ FIs\' financial assets to
     6.4                                                                         34
                     SC/ RC, including valuation and pricing aspects
                     Prudential norms for banks/ FIs for the sale
     6.5                                                                         36
                     transactions
     6.6             Disclosure Requirements                                     38
     6.7             Related Issues                                              38
                     GUIDELINES ON PURCHASE/SALE OF NON
7                    PERFORMING ASSETS                                           38

     7.1             Scope                                                       39
     7.2             Structure                                                   39
                     Procedure for purchase/ sale of non performing
     7.3                                                                         39
                     financial assets, including valuation and pricing aspects
                     Prudential norms for banks for the purchase/ sale
     7.4                                                                         41
                     transactions
     7.5             Disclosure Requirements                                     43
                     WRITING OFF OF NPAs
8                                                                                43
                     NPA Management ­ Requirement of an Effective
9                                                                                44
                     Mechanism and Granular Data

                                    PART B

            Prudential guidelines on Restructuring of Advances

10                   Background on Restructuring of advances                     45
11                   Key Concepts                                                46
                     General Principles and Prudential Norms for
12                                                                               46
                     Restructured Advances
     12.1            Eligibility criteria for restructuring of advances          46
     12.2            Asset classification norms                                  48
     12.3            Income recognition norms                                    49
     12.4            Provisioning norms                                          49
        12.5           Risk Weights                                            52
                       Prudential Norms for Conversion of Principal into
13                                                                             52
                       Debt / Equity
        13.1           Asset classification norms                              52
        13.2           Income recognition norms                                53
        13.3           Valuation and provisioning norms                        53
                       Prudential Norms for Conversion of Unpaid Interest
14                     into \'Funded Interest Term Loan\' (FITL), Debt or        53
                       Equity Instruments
        14.1           Asset classification norms                              53
        14.2           Income recognition norms                                53
        14.3           Valuation and provisioning norms                        54
                       Special Regulatory Treatment for Asset
15                                                                             54
                       Classification
        15.1           Applicability of special regulatory treatment           54
        15.2           Elements of special regulatory framework                55
16                     Miscellaneous                                           57
17                     Disclosures                                             58
18                     Objective of Restructuring                              59
                       Appendix to Part B                                      60

                                    Part ­ C
 Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair
  Recovery for Lenders: Framework for Revitalising Distressed Assets in the
                                   Economy


                                  Part ­ C1
Framework for Revitalising Distressed Assets in the Economy - Guidelines on
      Joint Lenders\' Forum (JLF) and Corrective Action Plan (CAP)

19                     Introduction                                            61
                       Guidelines on Joint Lenders\' Forum (JLF) and
20                                                                             61
                       Corrective Action Plan (CAP)
21                     Formation of Joint Lenders\' Forum                       61
22                     Corrective Action by JLF                                63
23                     Restructuring Process                                   64
                       Other Issues / Conditions Relating to Restructuring
24                                                                             67
                       by JLF / CDR Cell
                       Prudential Norms on Asset Classification and
25                                                                             69
                       Provisioning
26                     Accelerated Provisioning                                69
27                     Wilful Defaulters and Non-Cooperative Borrowers         71
28                     Dissemination of Information                            72
29                     Effective Date of Implementation of the Framework       72
                       Appendix to Part C-1                                    73

                                      Part C-2
        C-2: Framework for Revitalising Distressed Assets in the Economy -
     Refinancing of Project Loans, Sale of NPA and Other Regulatory Measures

30                     Introduction                                            74
31                     Refinancing of Project Loans                            74
 32                   Bank Loans for Financing Promoters\' Contribution     75
 33                   Credit Risk Management                               75
 34                   Reinforcement of Regulatory Instructions             77
 35                   Registration of Transactions with CERSAI             77
 36                   Board Oversight                                      78
                      Appendix to Part C-2                                 79

                                   ANNEXES

            Details of Gross Advances, Gross NPAs, Net Advances and Net
Annex -1                                                                   80
            NPA
Annex -2    List of relevant direct agricultural advances                  82
Annex -3    Format for Computing Provisioning Coverage Ratio (PCR)         83
            Organisational Framework for Restructuring of Advances Under
Annex -4                                                                   85
            Consortium / Multiple Banking / Syndication Arrangements
Annex -5    Key Concepts in Restructuring                                   97
Annex -6    Particulars of Accounts Restructured                           100
Annex - 7   List of circulars consolidated by the Master Circular          106
                Master Circular - Prudential Norms on Income Recognition,
               Asset Classification and Provisioning pertaining to Advances

                                              Part A

1.     GENERAL
1.1    In line with the international practices and as per the recommendations made by the
Committee on the Financial System (Chairman Shri M. Narasimham), the Reserve Bank of
India has introduced, in a phased manner, prudential norms for income recognition, asset
classification and provisioning for the advances portfolio of the banks so as to move
towards greater consistency and transparency in the published accounts.

1.2    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.

1.3    Banks are urged 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.

2.     DEFINITIONS

2.1    Non performing Assets

       2.1.1 An asset, including a leased asset, becomes non performing when it ceases
       to generate income for the bank.

       2.1.2    A non performing asset (NPA) is a loan or an advance where;

                i.   interest and/ or instalment of principal remain overdue for a period of more
                     than 90 days in respect of a term loan,

                ii. the account remains `out of order\' as indicated at paragraph 2.2 below, in
                    respect of an Overdraft/Cash Credit (OD/CC),

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

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

                v. the instalment of principal or interest thereon remains overdue for one
                    crop season for long duration crops,
                vi. the amount of liquidity facility remains outstanding for more than 90 days,
                   in respect of a securitisation transaction undertaken in terms of guidelines
                   on securitisation dated February 1, 2006.

               vii. in respect of derivative transactions, the overdue receivables representing
                    positive mark-to-market value of a derivative contract, if these remain
                    unpaid for a period of 90 days from the specified due date for payment.

       2.1.3   In case of interest payments, banks should, classify an account as NPA
       only if the interest due and charged during any quarter is not serviced fully within 90
       days from the end of the quarter.

       2.1.4 In addition, an account may also be classified as NPA in terms of paragraph
       4.2.4 of this Master Circular.

2.2    `Out of Order\' status

An account should be treated as \'out of order\' if the outstanding balance remains
continuously in excess of the sanctioned limit/drawing power. In cases 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 credits are not enough to cover the interest debited during the same
period, these accounts should be treated as \'out of order\'.

2.3    `Overdue\'
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.

3.     INCOME RECOGNITION

3.1    Income Recognition Policy

       3.1.1   The policy of income recognition has to be objective and based on the record
       of   recovery. Internationally income from non-performing assets (NPA) is not
       recognised on accrual basis but is booked as income only when it is actually
       received. Therefore, the banks should not charge and take to income account
       interest on any NPA. This will apply to Government guaranteed accounts also.

       3.1.2   However, interest on advances against Term Deposits, National Savings
       Certificates (NSCs), Indira Vikas Patras (IVPs), Kisan Vikas Patras (KVPs) and Life
       policies may be taken to income account on the due date, provided adequate margin
       is available in the accounts.

       3.1.3   Fees and commissions earned by the banks as a result of renegotiations or



                                              2
                                                                   DBOD-MC On IRAC Norms - 2014
       rescheduling of outstanding debts should be recognised on an accrual basis over the
       period of time covered by the renegotiated or rescheduled extension of credit.

3.2    Reversal of income
       3.2.1   If any advance, including bills purchased and discounted, becomes NPA, the
       entire interest accrued and credited to income account in the past periods, should be
       reversed if the same is not realised. This will apply to Government guaranteed
       accounts also.

       3.2.2   In respect of NPAs, fees, commission and similar income that have accrued
       should cease to accrue in the current period and should be reversed with respect to
       past periods, if uncollected.

       3.2.3   Leased Assets
       The finance charge component of finance income [as defined in `AS 19 Leases\'
       issued by the Council of the Institute of Chartered Accountants of India (ICAI)] on the
       leased asset which has accrued and was credited to income account before the
       asset became nonperforming, and remaining unrealised, should be reversed or
       provided for in the current accounting period.

3.3    Appropriation of recovery in NPAs
       3.3.1   Interest realised on NPAs may be taken to income account provided the
       credits in the accounts towards interest are not out of fresh/ additional credit facilities
       sanctioned to the borrower concerned.

       3.3.2   In the absence of a clear agreement between the bank and the borrower for
       the purpose of appropriation of recoveries in NPAs (i.e. towards principal or interest
       due), banks should adopt an accounting principle and exercise the right of
       appropriation of recoveries in a uniform and consistent manner.

3.4    Interest Application
On an account turning NPA, banks should reverse the interest already charged and not
collected by debiting Profit and Loss account, and stop further application of interest.
However, banks may continue to record such accrued interest in a Memorandum account in
their books. For the purpose of computing Gross Advances, interest recorded in the
Memorandum account should not be taken into account.




3.5    Computation of NPA levels


                                               3
                                                                     DBOD-MC On IRAC Norms - 2014
Banks are advised to compute their Gross Advances, Net Advances, Gross NPAs and Net
NPAs, as per the format in Annex -1.

4.      ASSET CLASSIFICATION

4.1     Categories of NPAs
Banks are required to classify nonperforming assets further into the following three
categories based on the period for which the asset has remained nonperforming and the
realisability of the dues:

            i.   Substandard Assets

            ii. Doubtful Assets

            iii. Loss Assets

        4.1.1    Substandard Assets
        With effect from March 31, 2005, a substandard asset would be one, which has
        remained NPA for a period less than or equal to 12 months. Such an asset will have
        well defined credit weaknesses that jeopardise the liquidation of the debt and are
        characterised by the distinct possibility that the banks will sustain some loss, if
        deficiencies are not corrected.

        4.1.2    Doubtful Assets
        With effect from March 31, 2005, an asset would be classified as doubtful if it has
        remained in the substandard category for a period of 12 months. A loan classified
        as doubtful has all the weaknesses inherent in assets that were classified as sub-
        standard, with the added characteristic that the weaknesses make collection or
        liquidation in full, ­ on the basis of currently known facts, conditions and values ­
        highly questionable and improbable.

        4.1.3    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.

4.2     Guidelines for classification of assets
        4.2.1 Broadly speaking, classification of assets into above categories should be
        done taking into account the degree of well-defined credit weaknesses and the extent
        of dependence on collateral security for realisation of dues.


                                               4
                                                                    DBOD-MC On IRAC Norms - 2014
4.2.2   Banks should establish appropriate internal systems (including technology
enabled processes) for proper and timely identification of NPAs, especially in respect
of high value accounts. The banks may fix a minimum cut off point to decide what
would   constitute   a high value account          depending upon      their   respective
business levels. The cutoff point should be valid for the entire accounting year.
Responsibility and validation levels for ensuring proper asset classification may be
fixed by the banks. The system should ensure that doubts in asset classification due
to any reason are settled through specified internal channels within one month from
the date on which the account would have been classified as NPA as per extant
guidelines.

4.2.3   Availability of security / net worth of borrower/ guarantor
The availability of security or net worth of borrower/ guarantor should not be taken
into account for the purpose of treating an advance as NPA or otherwise, except to
the extent provided in Para 4.2.9.

4.2.4   Accounts with temporary deficiencies
The classification of an asset as NPA should be based on the record of recovery.
Bank should not classify an advance account as NPA merely due to the existence of
some deficiencies which are temporary in nature such as non-availability of adequate
drawing power based on the latest available stock statement, balance outstanding
exceeding the limit temporarily, non-submission of stock statements and non-
renewal of the limits on the due date, etc. In the matter of classification of
accounts with such deficiencies banks may follow the following guidelines:

        i)        Banks should ensure that drawings in the working capital accounts are
        covered by the adequacy of current assets, since current assets are first
        appropriated in times of distress. Drawing power is required to be arrived at
        based on the stock statement which is current. However, considering the
        difficulties of large borrowers, stock 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.

        ii)     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 case of
        constraints such as non-availability of financial statements and other data
        from the borrowers, the branch should furnish evidence to show that renewal/
        review of credit limits is already on and would be completed soon. In


                                        5
                                                             DBOD-MC On IRAC Norms - 2014
         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.


4.2.5    Upgradation of loan accounts classified as NPAs
If arrears of interest and principal are paid by the borrower in the case of loan
accounts classified as NPAs, the account should no longer be treated as non-
performing and may be classified as `standard\' accounts. With regard to upgradation
of a restructured/ rescheduled account which is classified as NPA contents of
paragraphs 12.2 and 15.2 in the Part B of this circular will be applicable.



4.2.6    Accounts regularised near about the balance sheet date
The asset classification of borrowal accounts where a solitary or a few credits are
recorded before the balance sheet date should be handled with care and without
scope for subjectivity. Where the account indicates inherent weakness on the basis
of the data available, the account should be deemed as a NPA. In other genuine
cases,     the   banks must    furnish   satisfactory   evidence    to    the   Statutory
Auditors/Inspecting Officers about the manner of regularisation of the account to
eliminate doubts on their performing status.

4.2.7    Asset Classification to be borrower-wise and not facility-wise
         i)       It is difficult to envisage a situation when only one facility to a
         borrower/one investment in any of the securities issued by the borrower
         becomes a problem credit/investment and not others. Therefore, all the
         facilities granted by a bank to a borrower and investment in all the
         securities issued by the borrower will have to be treated as NPA/NPI and not
         the particular facility/investment or part thereof which has become irregular.

         ii)    If the debits arising out of devolvement of letters of credit or invoked
         guarantees are parked in a separate account, the balance outstanding in that
         account also should be treated as a part of the borrower\'s principal operating
         account for the purpose of application of prudential norms on income
         recognition, asset classification and provisioning.

         iii)     The bills discounted under LC favouring a borrower may not be
         classified as a Non-performing advance (NPA), when any other facility
         granted to the borrower is classified as NPA. However, in case documents
         under LC are not accepted on presentation or the payment under the LC is
         not made on the due date by the LC issuing bank for any reason and the
         borrower does not immediately make good the amount disbursed as a result
         of discounting of concerned bills, the outstanding bills discounted will
         immediately be classified as NPA with effect from the date when the other
         facilities had been classified as NPA.

         iv) Derivative Contracts
         a) The overdue receivables representing positive mark-to-market value of a


                                         6
                                                            DBOD-MC On IRAC Norms - 2014
derivative contract will be treated as a non-performing asset, if these remain
unpaid for 90 days or more. In case the overdues arising from forward
contracts and plain vanilla swaps and options become NPAs, all other funded
facilities granted to the client shall also be classified as non-performing asset
following the principle of borrower-wise classification as per the existing asset
classification norms. However, any amount, representing positive mark-to-
market value of the foreign exchange derivative contracts (other than forward
contract and plain vanilla swaps and options) that were entered into during the
period April 2007 to June 2008, which has already crystallised or might
crystallise in future and is / becomes receivable from the client, should be
parked in a separate account maintained in the name of the client /
counterparty. This amount, even if overdue for a period of 90 days or more,
will not make other funded facilities provided to the client, NPA on account of
the principle of borrower-wise asset classification, though such receivable
overdue for 90 days or more shall itself be classified as NPA, as per the
extant Income Recognition and Asset Classification (IRAC) norms. The
classification of all other assets of such clients will, however, continue to be
governed by the extant IRAC norms.

b) If the client concerned is also a borrower of the bank enjoying a Cash
Credit or Overdraft facility from the bank, the receivables mentioned at item
(iv) (a) above may be debited to that account on due date and the impact of
its non-payment would be reflected in the cash credit / overdraft facility
account. The principle of borrower-wise asset classification would be
applicable here also, as per extant norms.

c) In cases where the contract provides for settlement of the current mark-to-
market value of a derivative contract before its maturity, only the current credit
exposure (not the potential future exposure) will be classified as a non-
performing asset after an overdue period of 90 days.

d) As the overdue receivables mentioned above would represent unrealised
income already booked by the bank on accrual basis, after 90 days of
overdue period, the amount already taken to \'Profit and Loss a/c\' should be
reversed, and held in a `Suspense Account-Crystalised Receivables\' in the
same manner as done in the case of overdue advances.

e) Further, in cases where the derivative contracts provides for more
settlements in future, the MTM value will comprise of (a) crystallised
receivables and (b) positive or negative MTM in respect of future receivables.
If the derivative contract is not terminated on the overdue receivable
remaining unpaid for 90 days, in addition to reversing the crystallised
receivable from Profit and Loss Account as stipulated in para (d) above, the
positive MTM pertaining to future receivables may also be reversed from
Profit and Loss Account to another account styled as `Suspense Account ­
Positive MTM\'. The subsequent positive changes in the MTM value may be
credited to the `Suspense Account ­ Positive MTM\', not to P&L Account. The
subsequent decline in MTM value may be adjusted against the balance in
`Suspense Account ­ Positive MTM\'. If the balance in this account is not
sufficient, the remaining amount may be debited to the P&L Account. On
payment of the overdues in cash, the balance in the `Suspense Account-
Crystalised Receivables\' may be transferred to the `Profit and Loss Account\',
to the extent payment is received.

f) If the bank has other derivative exposures on the borrower, it follows that
the MTMs of other derivative exposures should also be dealt with / accounted


                                7
                                                     DBOD-MC On IRAC Norms - 2014
        for in the manner as described in para (e) above, subsequent to the
        crystalised/settlement amount in respect of a particular derivative transaction
        being treated as NPA.

        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.

        h) Similarly, in case a fund-based credit facility extended to a borrower is
        classified as NPA, the MTMs of all the derivative exposures should be treated
        in the manner discussed above.



4.2.8   Advances under consortium arrangements
Asset classification of accounts under consortium should be based on the record of
recovery of the individual member banks and other aspects having a bearing on
the recoverability of the advances. Where the remittances by the borrower under
consortium lending arrangements are pooled with one bank and/or where the bank
receiving remittances is not parting with the share of other member banks, the
account will be treated as not serviced in the books of the other member banks and
therefore, be treated as NPA. The banks participating in the consortium should,
therefore, arrange to get their share of recovery transferred from the lead bank or get
an express consent from the lead bank for the transfer of their share of recovery, to
ensure proper asset classification in their respective books.



4.2.9  Accounts where there is erosion in the value of security/frauds committed by
       borrowers
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. In cases of such
serious credit impairment the asset should be straightaway classified as doubtful or
loss asset as appropriate:

        i.     Erosion in the value of security can be reckoned as significant when
        the realisable value of the security is less than 50 per cent of the value
        assessed by the bank or accepted by RBI at the time of last inspection, as the
        case may be. Such NPAs may be straightaway classified under doubtful
        category and provisioning should be made as applicable to doubtful assets.

       ii.      If the realisable value of the security, as assessed by the bank/
       approved valuers/ RBI is less than 10 per cent of the outstanding in the
       borrowal accounts, the existence of security should be ignored     and      the
       asset should be straightaway classified as loss asset. It may be either written
       off or fully provided for by the bank.
4.2.10 Advances to Primary Agricultural Credit Societies (PACS)/Farmers\' Service


                                       8
                                                           DBOD-MC On IRAC Norms - 2014
Societies (FSS) ceded to Commercial Banks
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. The other direct loans & advances, if
any, granted by the bank to the member borrower of a PACS/ FSS outside the on-
lending arrangement will become NPA even if one of the credit facilities granted to
the same borrower becomes NPA.

4.2.11 Advances against Term Deposits, NSCs, KVPs/IVPs, etc.
Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs and life
policies need not be treated as NPAs, provided adequate margin is available in the
accounts. Advances against gold ornaments, government securities and all other
securities are not covered by this exemption.

4.2.12 Loans with moratorium for payment of interest
       i.      In the case of bank finance given for industrial projects or for
       agricultural plantations etc. where moratorium is available for payment of
       interest, payment of interest becomes \'due\' only after the moratorium or
       gestation period is over. Therefore, such amounts of interest do not become
       overdue and hence do not become NPA, with reference to the date of debit of
       interest. They become overdue after due date for payment of interest, if
       uncollected.

       ii.    In the case of housing loan or similar advances granted to staff
       members where interest is payable after recovery of principal, interest need
       not be considered as overdue from the first quarter onwards. Such
       loans/advances should be classified as NPA only when there is a default in
       repayment of instalment of principal or payment of interest on the respective
       due dates.

4.2.13 Agricultural advances
       i.     A loan granted for short duration crops will be treated as NPA, if the
       instalment of principal or interest thereon remains overdue for two crop
       seasons. A loan granted for long duration crops will be treated as NPA, if the
       instalment of principal or interest thereon remains overdue for one crop
       season. For the purpose of these guidelines, \"long duration\" crops would be
       crops with crop season longer than one year and crops, which are not \"long
       duration\" crops, would be treated as \"short duration\" crops. The crop season
       for each crop, which means the period up to harvesting of the crops raised,
       would be as determined by the State Level Bankers\' Committee in each
       State. Depending upon the duration of crops raised by an agriculturist, the
       above NPA norms would also be made applicable to agricultural term
       loans availed of by him.

       The above norms should be made applicable to all direct agricultural


                                      9
                                                          DBOD-MC On IRAC Norms - 2014
       advances as listed at paragraph III (1.1) of the Circular on Priority Sector
       Lending ­ Targets and Classification RPCD.CO.Plan.BC.9/04.09.01/2013-14
       dated July 1, 2013. An extract of the list of these items is furnished in the
       Annex - 2. In respect of agricultural loans, other than those specified in the
       Annex - 2 and term loans given to non-agriculturists, identification of
       NPAs would be done on the same basis as non-agricultural advances, which,
       at present, is the 90 days delinquency norm.

       ii.     Where natural calamities impair the repaying capacity of agricultural
       borrowers, banks may decide on their own as a relief measure conversion of
       the short-term production loan into a term loan or re-schedulement of the
       repayment period; and the sanctioning of fresh short-term loan, subject to
       guidelines contained in RBI circular RPCD. No.PLFS.BC.6/05.04.02/2013-14
       dated July 1, 2013.

       iii.    In such cases of conversion or re-schedulement, the term loan as well
       as fresh short-term loan may be treated as current dues and need not be
       classified as NPA. The asset classification of these loans would thereafter be
       governed by the revised terms & conditions and would be treated as NPA if
       interest and/or instalment of principal remains overdue for two crop
       seasons for short duration crops and for one crop season for long duration
       crops. For the purpose of these guidelines, \"long duration\" crops would be
       crops with crop season longer than one year and crops, which are not \'long
       duration\" would be treated as \"short duration\" crops.

       iv.     While fixing the repayment schedule in case of rural housing
       advances granted to agriculturists under Indira Awas Yojana and Golden
       Jubilee Rural Housing Finance Scheme, banks should ensure that the
       interest/instalment payable on such advances are linked to crop cycles.

4.2.14 Government guaranteed advances
The credit facilities backed by guarantee of the Central Government though overdue
may be treated as NPA only when the Government repudiates its guarantee when
invoked. This exemption from classification of Government guaranteed advances as
NPA is not for the purpose of recognition of income. The requirement of invocation of
guarantee has been delinked for deciding the asset classification and provisioning
requirements in respect of State Government guaranteed exposures. With effect from
the year ending March 31, 2006 State Government guaranteed advances and
investments in   State   Government      guaranteed    securities would    attract   asset
classification and provisioning norms if interest and/or principal or any other amount
due to the bank remains overdue for more than 90 days.

4.2.15 Projects under implementation
4.2.15.1 For all projects financed by the FIs/ banks after May 28, 2002, the `Date of
Completion\' and the `Date of Commencement of Commercial Operations\' (DCCO),
of the project should be clearly spelt out at the time of financial closure of the project
and the same should be formally documented. These should also be documented in
the appraisal note by the bank during sanction of the loan.


                                       10
                                                              DBOD-MC On IRAC Norms - 2014
4.2.15.2 Project Loans
          There are occasions when the completion of projects is delayed for legal and
          other extraneous reasons like delays in Government approvals etc. All these
          factors, which are beyond the control of the promoters, may lead to delay in
          project implementation and involve restructuring / reschedulement of loans by
          banks. Accordingly, the following asset classification norms would apply to
          the project loans before commencement of commercial operations.

          For this purpose, all project loans have been divided into the following two
          categories:
          (a) Project Loans for infrastructure sector
          (b) Project Loans for non-infrastructure sector

For the purpose of these guidelines, \'Project Loan\' would mean any term loan which
has been extended for the purpose of setting up of an economic venture. Further,
Infrastructure Sector is a sector as defined in extant RBI circular on \'Definition of
Infrastructure Lending\'.


  4.2.15.3          Project Loans for Infrastructure Sector
  (i)              A loan for an infrastructure project will be classified as NPA during any
  time before commencement of commercial operations as per record of recovery
  (90 days overdue), unless it is restructured and becomes eligible for classification
  as \'standard asset\' in terms of paras (iii) to (v) below.

  (ii)             A loan for an infrastructure project will be classified as NPA if it fails to
  commence commercial operations within two years from the original DCCO, even
  if it is regular as per record of recovery, unless it is restructured and becomes
  eligible for classification as \'standard asset\' in terms of paras (iii) to (v) below.

  (iii)            If a project loan classified as \'standard asset\' is restructured any time
  during the period up to two years from the original date of commencement of
  commercial operations (DCCO), in accordance with the provisions of Part B of this
  Master Circular, it can be retained as a standard asset if the fresh DCCO is fixed
  within the following limits, and further provided the account continues to be
  serviced as per the restructured terms.

          (a)   Infrastructure Projects involving court cases
                Up to another 2 years (beyond the existing extended period of 2 years,
                as prescribed in para 4.2.15.3 (ii), i.e., total extension of 4 years), in case
                the reason for extension of date of commencement of production is
                arbitration proceedings or a court case.


                                            11
                                                                  DBOD-MC On IRAC Norms - 2014
           (b) Infrastructure Projects delayed for other reasons beyond the control of
           promoters
               Up to another 1 year (beyond the existing extended period of 2 years, as
                prescribed in para 4.2.15.3 (ii), i.e., total extension of 3 years), in other
                than court cases.

    (iv)             It is re-iterated that the dispensation in para 4.2.15.3 (iii) is subject
    to adherence to the provisions regarding restructuring of accounts as contained in
    the Master Circular which would inter alia require that the application for
    restructuring should be received before the expiry of period of two years from the
    original DCCO and when the account is still standard as per record of recovery.
    The other conditions applicable would be:

           a.   In cases where there is moratorium for payment of interest, banks should
           not book income on accrual basis beyond two years from the original DCCO,
           considering the high risk involved in such restructured accounts.

           b.   Banks should maintain following provisions on such accounts as long as
           these are classified as standard assets in addition to provision for diminution
           in fair value due to extension of DCCO:
                Particulars                             Provisioning Requirement
If the revised DCCO is within two years
from the original DCCO prescribed at the 0.40 per cent
time of financial closure
                                                Project loans restructured with effect
                                                from June 1, 2013:
                                                 5.00 per cent ­ From the date of such
                                                restructuring till the revised DCCO or 2
                                                years from the date of restructuring,
If the DCCO is extended beyond two
                                                whichever is later
years and upto four years or three years
from the original DCCO, as the case may Stock of project loans classified as
be, depending upon the reasons for such restructured as on June 1, 2013:
delay                                                      * 3.50 per cent - with effect
                                                           from March 31, 2014 (spread
                                                           over the four quarters of 2013-
                                                           14)

                                                           * 4.25 per cent - with effect
                                                           from March 31, 2015 (spread
                                                           over the four quarters of 2014-



                                           12
                                                                DBOD-MC On IRAC Norms - 2014
                                                     15)

                                                     * 5.00 per cent - - with effect
                                                     from March 31, 2016 (spread
                                                     over the four quarters of 2015-
                                                     16)

                                           The above provisions will be applicable
                                           from the date of restructuring till the
                                           revised DCCO or 2 years from the date
                                           of restructuring, whichever is later.


(v) For the purpose of these guidelines, mere extension of DCCO would not be
considered as restructuring, if the revised DCCO falls within the period of two
years from the original DCCO. In such cases the consequential shift in repayment
period 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. As such project loans will be treated as standard assets in all
respects, they will attract standard asset provision of 0.40 per cent..

(vi) In case of infrastructure projects under implementation, where Appointed Date
(as defined in the concession agreement) is shifted due to the inability of the
Concession Authority to comply with the requisite conditions, change in date of
commencement of commercial operations (DCCO) need not be treated as
`restructuring\', subject to following conditions:

      a) The project is an infrastructure project under public private partnership
      model awarded by a public authority;
      b) The loan disbursement is yet to begin;
      c) The revised date of commencement of commercial operations is
      documented by way of a supplementary agreement between the borrower
      and lender and;
      d) Project viability has been reassessed and sanction from appropriate
      authority has been obtained at the time of supplementary agreement.

4.2.15.4 Project Loans for Non-Infrastructure Sector (Other than Commercial
Real Estate Exposures)

(i)          A loan for a non-infrastructure project will be classified as NPA during
any time before commencement of commercial operations as per record of



                                     13
                                                           DBOD-MC On IRAC Norms - 2014
   recovery (90 days overdue), unless it is restructured and becomes eligible for
   classification as \'standard asset\' in terms of paras (iii) to (iv) below.

   (ii)           A loan for a non-infrastructure project will be classified as NPA if it
   fails to commence commercial operations within one year from the original DCCO,
   even if is regular as per record of recovery, unless it is restructured and becomes
   eligible for classification as \'standard asset\' in terms of paras (iii) to (iv) below.

   (iii)             In case of non-infrastructure projects, if the delay in commencement
   of commercial operations extends beyond the period of one year from the date of
   completion as determined at the time of financial closure, banks can prescribe a
   fresh DCCO, and retain the \"standard\" classification by undertaking restructuring
   of accounts in accordance with the provisions contained in this Master Circular,
   provided the fresh DCCO does not extend beyond a period of two years from the
   original DCCO. This would among others also imply that the restructuring
   application is received before the expiry of one year from the original DCCO, and
   when the account is still \"standard\" as per the record of recovery.

           The other conditions applicable would be:
           a.   In cases where there is moratorium for payment of interest, banks should
           not book income on accrual basis beyond one year from the original DCCO,
           considering the high risk involved in such restructured accounts.
           b.   Banks should maintain following provisions on such accounts as long as
           these are classified as standard assets apart from provision for diminution in
           fair value due to extension of DCCO:


                  Particulars                       Provisioning Requirement

If the revised DCCO is within one year 0.40 per cent
from the original DCCO prescribed at the
time of financial closure

                                              Project loans restructured with effect
                                              from June 1, 2013:
If the DCCO is extended beyond one
year and upto two years from the original 5.00 per cent ­ From the date of
                                          restructuring for 2 years
DCCO prescribed at the time of financial
closure                                       Stock of Project loans classified as
                                              restructured before June 01, 2013:

                                                        * 3.50 per cent - with effect


                                         14
                                                                DBOD-MC On IRAC Norms - 2014
                                                     from March 31, 2014
                                                     (spread over the four
                                                     quarters of 2013-14)

                                                     * 4.25 per cent - with effect
                                                     from March 31, 2015
                                                     (spread over the four
                                                     quarters of 2014-15)

                                                     * 5.00 per cent - with effect
                                                     from March 31, 2016
                                                     (spread over the four
                                                     quarters of 2015-16)

                                           The    above     provisions      will    be
                                           applicable     from    the      date     of
                                           restructuring for 2 years.


(iv) For the purpose of these guidelines, mere extension of DCCO would not be
considered as restructuring, if the revised DCCO falls within the period of one year
from the original DCCO. In such cases the consequential shift in repayment period
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. As such project loans will be treated as standard assets in all
respects, they will attract standard asset provision of 0.40 per cent.


4.2.15.5      Other Issues
(i)           All   other   aspects   of    restructuring   of   project    loans    before
commencement of commercial operations would be governed by the provisions of
Part B of this Master Circular on Prudential norms on Income Recognition, Asset
Classification and Provisioning Pertaining to Advances. Restructuring of project
loans after commencement of commercial operations will also be governed by
these instructions.

(ii)            Any change in the repayment schedule of a project loan caused due
to an increase in the project outlay on account of increase in scope and size of the
project, would not be treated as restructuring if:
       (a)   The increase in scope and size of the project takes place before
       commencement of commercial operations of the existing project.
       (b)   The rise in cost excluding any cost-overrun in respect of the original
       project is 25% or more of the original outlay.


                                      15
                                                             DBOD-MC On IRAC Norms - 2014
             (c)   The bank re-assesses the viability of the project before approving the
             enhancement of scope and fixing a fresh DCCO.
             (d)   On re-rating, (if already rated) the new rating is not below the previous
             rating by more than one notch.

(iii) Project Loans for Commercial Real Estate
It has been represented that commercial real estate (CRE) projects also face
problems of delays in achieving the DCCO for extraneous reasons. Therefore, it has
been decided that for CRE projects mere extension of DCCO would not be
considered as restructuring, if the revised DCCO falls within the period of one year
from the original DCCO and there is no change in other terms and conditions except
possible shift of the repayment schedule and servicing of the loan by equal or shorter
duration compared to the period by which DCCO has been extended. Such CRE
project loans will be treated as standard assets in all respects for this purpose without
attracting the higher provisioning applicable for restructured standard assets.
However, as stated in paragraph 15.1 of this circular, the asset classification benefit
would not be available to CRE projects if they are restructured.

(iv) Multiple revisions of the DCCO and consequential shift in repayment schedule
for equal or shorter duration (including the start date and end date of revised
repayment schedule) will be treated as a single event of restructuring provided that
the revised DCCO is fixed within the respective time limits stipulated at paragraphs
4.2.15.3 (iii) and 4.2.15.4 (iii) above, and all other terms and conditions of the loan
remained unchanged.


(v)     Banks, if deemed fit, may extend DCCO beyond the respective time limits
stipulated at paragraphs 4.2.15.3 (iii) and 4.2.15.4 (iii) above; however, in that case,
banks will not be able to retain the `standard\' asset classification status of such loan
accounts.

(vi) In all the above cases of restructuring where regulatory forbearance has been
extended, the Boards of banks should satisfy themselves about the viability of the
project and the restructuring plan.

4.2.15.6             Income recognition
      (i)            Banks may recognise income on accrual basis in respect of the
      projects under implementation, which are classified as `standard\'.

      (ii)           Banks should not recognise income on accrual basis in respect of the



                                            16
                                                                DBOD-MC On IRAC Norms - 2014
projects under implementation which are classified as a `substandard\' asset.
Banks may recognise income in such accounts only on realisation on cash basis.

Consequently, banks which have wrongly recognised income in the past should
reverse the interest if it was recognised as income during the current year or
make a provision for an equivalent amount if it was recognised as income in the
previous year(s). 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. If, however, the amount of funded interest
   is recognised as income, a provision for an equal amount should also be
   made simultaneously. In other words, any funding of interest in respect of
   NPAs, if recognised as income, should be fully provided for.

   b)      Conversion into equity, debentures or any other instrument: The
   amount      outstanding     converted        into   other      instruments would
   normally comprise principal and the interest components. If the amount of
   interest dues is converted into equity or any other instrument, and income
   is recognised in consequence, full provision should be made for the amount
   of income so recognised to offset the effect of such income recognition. Such
   provision would be in addition to the amount of provision that may be
   necessary for the depreciation in the value of the equity or other instruments,
   as per the investment valuation norms. However, if the conversion of interest
   is into equity which is quoted, interest income can be recognised at market
   value of equity, as on the date of conversion, not exceeding the amount of
   interest converted to equity. Such equity must thereafter be classified in the
   \"available for sale\" category and valued at lower of cost or market value. In
   case of conversion of principal and /or interest in respect of NPAs into
   debentures, such debentures should be treated as NPA, ab initio, in the same
   asset classification as was applicable to loan just before conversion and
   provision made as per norms. This norm would also apply to zero coupon
   bonds or other instruments which seek to defer the liability of the issuer. On
   such debentures, income should be recognised only on realisation basis. The
   income in respect of unrealised interest which is converted into debentures or


                                 17
                                                       DBOD-MC On IRAC Norms - 2014
         any other fixed maturity instrument should be recognised only on redemption
         of such instrument. Subject to the above, the equity shares or other
         instruments arising from conversion of the principal amount of loan would also
         be subject to the usual prudential valuation norms as applicable to such
         instruments.

4.2.16          Takeout Finance
Takeout finance is the product emerging in the context of the funding of long-term
infrastructure projects. Under this arrangement, the institution/the bank financing
infrastructure projects will have an arrangement with any financial institution for
transferring to the latter the outstanding in respect of such financing in their books on
a predetermined basis. In view of the time-lag involved in taking-over, the possibility
of a default in the meantime cannot be ruled out. The norms of asset classification
will have to be followed by the concerned bank/financial institution in whose books
the account stands as balance sheet item as on the relevant date. If the lending
institution observes that the asset has turned NPA on the basis of the record of
recovery, it should be classified accordingly. The lending institution should not
recognise income on accrual basis and account for the same only when it is paid by
the borrower/ taking over institution (if the arrangement so provides). However, the
taking over institution, on taking over such assets, should make provisions treating
the account as NPA from the actual date of it becoming NPA even though the
account was not in its books as on that date.

4.2.17 Post-shipment Supplier\'s Credit
   i.    In respect of post-shipment credit extended by the banks covering export of
         goods to countries for which the Export Credit Guarantee Corporation\'s
         (ECGC) cover is available, EXIM Bank has introduced a guarantee-cum--
         refinance programme whereby, in the event of default, EXIM Bank will pay the
         guaranteed amount to the bank within a period of 30 days from the day the
         bank invokes the guarantee after the exporter has filed claim with ECGC.
   ii. Accordingly, to the extent payment has been received from the EXIM Bank,
         the advance may not be treated as a nonperforming asset for asset
         classification and provisioning purposes.

4.2.18 Export Project Finance
   i.    In respect of export project finance, there could be instances where the actual
         importer has paid the dues to the bank abroad but the bank in turn is unable
         to remit the amount due to political developments such as war, strife, UN
         embargo, etc.


                                       18
                                                            DBOD-MC On IRAC Norms - 2014
     ii. In such cases, where the lending bank is able to establish through
        documentary evidence that the importer has cleared the dues in full
        by depositing the amount in the bank abroad before it turned into NPA in the
        books of the bank, but the importer\'s country is not allowing the funds to be
        remitted due to political or other reasons, the asset classification may be
        made after a period of one year from the date the amount was deposited
        by the importer in the bank abroad.

4.2.19 Advances under rehabilitation approved by Board for Industrial and Financial
Reconstruction (BIFR)/Term Lending Institutions (TLIs)
Banks are not permitted to upgrade the classification of any advance in respect of
which the terms have been renegotiated unless the package of renegotiated terms
has worked satisfactorily for a period of one year. While the existing credit facilities
sanctioned to a unit under rehabilitation packages approved by BIFR/TLIs will
continue to be classified as substandard or doubtful as the case may be, in respect of
additional facilities sanctioned under the rehabilitation packages, the Income
Recognition, Asset Classification norms will become applicable after a period of one
year from the date of disbursement.

4.2.20 Transactions Involving Transfer of Assets through Direct Assignment of Cash
Flows and the Underlying Securities

i)      Originating Bank: The asset classification and provisioning rules in respect of
        the exposure representing the Minimum Retention Requirement (MRR) of the
        Originator of the asset would be as under:

               a) The originating bank may maintain a consolidated account of the
               amount representing MRR if the loans transferred are retail loans. In
               such a case, the consolidated amount receivable in amortisation of the
               MRR and its periodicity should be clearly established and the overdue
               status of the MRR should be determined with reference to repayment
               of such amount. Alternatively, the originating bank may continue to
               maintain borrower-wise accounts for the proportionate amounts
               retained in respect of those accounts. In such a case, the overdue
               status of the individual loan accounts should be determined with
               reference to repayment received in each account.

               b) In the case of transfer of a pool of loans other than retail loans, the
               originator should maintain borrower-wise accounts for the
               proportionate amounts retained in respect of each loan. In such a
               case, the overdue status of the individual loan accounts should be
               determined with reference to repayment received in each account.

               c) If the originating bank acts as a servicing agent of the assignee
               bank for the loans transferred, it would know the overdue status of


                                       19
                                                            DBOD-MC On IRAC Norms - 2014
              loans transferred which should form the basis of classification of the
              entire MRR/individual loans representing MRR as NPA in the books of
              the originating bank, depending upon the method of accounting
              followed as explained in para (a) and (b) above.

ii)    Purchasing Bank: In purchase of pools of both retail and non-retail loans,
       income recognition, asset classification and provisioning norms for the
       purchasing bank will be applicable based on individual obligors and not based
       on portfolio. Banks should not apply the asset classification, income
       recognition and provisioning norms at portfolio level, as such treatment is
       likely to weaken the credit supervision due to its inability to detect and
       address weaknesses in individual accounts in a timely manner. If the
       purchasing bank is not maintaining the individual obligor-wise accounts for
       the portfolio of loans purchased, it should have an alternative mechanism to
       ensure application of prudential norms on individual obligor basis, especially
       the classification of the amounts corresponding to the obligors which need to
       be treated as NPAs as per existing prudential norms. One such mechanism
       could be to seek monthly statements containing account-wise details from the
       servicing agent to facilitate classification of the portfolio into different asset
       classification categories. Such details should be certified by the authorized
       officials of the servicing agent. Bank\'s concurrent auditors, internal auditors
       and statutory auditors should also conduct checks of these portfolios with
       reference to the basic records maintained by the servicing agent. The
       servicing agreement should provide for such verifications by the auditors of
       the purchasing bank. All relevant information and audit reports should be
       available for verification by the Inspecting Officials of RBI during the Annual
       Financial Inspections of the purchasing banks.


iii)   The guidelines prescribed above at 4.2.20 (i) & (ii) do not apply to

       (a) Transfer of loan accounts of borrowers by a bank to other
       bank/FIs/NBFCs and vice versa, at the request/instance of borrower;

       (b) Inter-bank participations;

       (c) Trading in bonds;

       (d) Sale of entire portfolio of assets consequent upon a decision to exit the
       line of business completely. Such a decision should have the approval of
       Board of Directors of the bank;

       (e) Consortium and syndication arrangements and arrangement under
       Corporate Debt Restructuring mechanism;



                                        20
                                                            DBOD-MC On IRAC Norms - 2014
              (f) Any other arrangement/transactions, specifically exempted by the Reserve
              Bank of India.

      4.2.21 Credit Card Accounts
      (i) In credit card accounts, the amount spent is billed to the card users through a
      monthly statement with a definite due date for repayment. Banks give an option to
      the card users to pay either the full amount or a fraction of it, i.e., minimum amount
      due, on the due date and roll-over the balance amount to the subsequent months\'
      billing cycle.

      (ii) A credit card account will be treated as non-performing asset if the minimum
      amount due, as mentioned in the statement, is not paid fully within 90 days from the
      next statement date. The gap between two statements should not be more than a
      month.

      (iii) Banks should follow this uniform method of determining over-due status for credit
      card accounts while reporting to credit information companies and for the purpose of
      levying of penal charges, viz. late payment charges, etc., if any.

5     PROVISIONING NORMS
5.1   General

      5.1.1   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.

      5.1.2   In conformity with the prudential norms, provisions should be made on the
      nonperforming assets on the basis of classification of assets into prescribed
      categories as detailed in paragraphs 4 supra. Taking into account the time lag
      between an account becoming doubtful of recovery, its recognition as such, the
      realisation of the security and the erosion over time in the value of security charged
      to the bank, the banks should make provision against substandard assets, doubtful
      assets and loss assets as below:

5.2   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.

5.3   Doubtful assets
      i.      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.



                                             21
                                                                 DBOD-MC On IRAC Norms - 2014
        ii.    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:


               Period for which the advance has           Provision requirement
                remained in `doubtful\' category                    (%)
              Up to one year                                        25
              One to three years                                    40
              More than three years                                100

        Note: Valuation of Security for provisioning purposes
        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. 5 crore and above
        stock audit   at   annual   intervals by    external   agencies appointed   as per   the
        guidelines approved by the Board would be mandatory in order to enhance the
        reliability on stock valuation. Collaterals such as immovable properties charged in
        favour of the bank should be got valued once in three years by valuers appointed
        as per the guidelines approved by the Board of Directors.

5.4     Substandard assets
(i)     A general provision of 15 percent on total outstanding should be made without
making any allowance for ECGC guarantee cover and securities available.

(ii)    The `unsecured exposures\' which are identified as `substandard\' would attract
additional provision of 10 per cent, i.e., a total of 25 per cent on the outstanding balance.
However, in view of certain safeguards such as escrow accounts available in respect of
infrastructure lending, infrastructure loan accounts which are classified as sub-standard will
attract a provisioning of 20 per cent instead of the aforesaid prescription of 25 per cent. To
avail of this benefit of lower provisioning, the banks should have in place an appropriate
mechanism to escrow the cash flows and also have a clear and legal first claim on these
cash flows. The provisioning requirement for unsecured `doubtful\' assets is 100 per cent.
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. `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 (including State government guarantees), comfort letters etc.

(iii)   In order to enhance transparency and ensure correct reflection of the unsecured



                                               22
                                                                     DBOD-MC On IRAC Norms - 2014
advances in Schedule 9 of the banks\' balance sheet, it is advised that the following would be
applicable from the financial year 2009-10 onwards:

       a) For determining the amount of unsecured advances for reflecting in schedule 9
       of the published balance sheet, the rights, licenses, authorisations, etc., charged to
       the banks as collateral in respect of projects (including infrastructure projects)
       financed by them, should not be reckoned as tangible security. Hence such
       advances shall be reckoned as unsecured.

       b) However, banks may treat annuities under build-operate-transfer (BOT) model 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 securities subject to the condition that banks\' right to receive
       annuities and toll collection rights is legally enforceable and irrevocable.

       c) It is noticed that most of the infrastructure projects, especially road/highway
       projects are user-charge based, for which the Planning Commission has published
       Model Concession Agreements (MCAs). These have been adopted by various
       Ministries and State Governments for their respective public-private partnership
       (PPP) projects and they provide adequate comfort to the lenders regarding security
       of their debt. In view of the above features, in case of PPP projects, the debts due to
       the lenders may be considered as secured to the extent assured by the project
       authority in terms of the Concession Agreement, subject to the following conditions :

             i) User charges / toll / tariff payments are kept in an escrow account where
             senior lenders have priority over withdrawals by the concessionaire;

             ii) There is sufficient risk mitigation, such as pre-determined increase in user
             charges or increase in concession period, in case project revenues are lower
             than anticipated;

             iii) The lenders have a right of substitution in case of concessionaire default;

             iv) The lenders have a right to trigger termination in case of default in debt
             service; and

             v) Upon termination, the Project Authority has an obligation of (i) compulsory
             buy-out and (ii) repayment of debt due in a pre-determined manner.

       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.

       d) Banks should also disclose the total amount of advances for which intangible
       securities such as charge over the rights, licenses, authority, etc. has been taken as
       also the estimated value of such intangible collateral. The disclosure may be made
       under a separate head in \"Notes to Accounts\". This would differentiate such loans
       from other entirely unsecured loans.

5.5    Standard assets
       (i)     The provisioning requirements for all types of standard assets stands as
       below. Banks should make general provision for standard assets at the following
       rates for the funded outstanding on global loan portfolio basis:


                                               23
                                                                    DBOD-MC On IRAC Norms - 2014
                  (a)      direct advances to agricultural and Small and Micro Enterprises
                           (SMEs) sectors at 0.25 per cent;

                  (b)      advances to Commercial Real Estate (CRE) Sector at 1.00 per cent;


                  (c)      advances to Commercial Real Estate ­ Residential Housing Sector
                           (CRE - RH) at 0.75 per cent1
                  (d)      housing loans extended at teaser rates and restructured advances as
                           as indicated in Para 5.9.13 and 12.4 respectively;

                  (e)      all other loans and advances not included in (a) (b) and (c) above at
                           0.40 per cent.

         (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.

         (iv)     It is clarified that the Medium Enterprises will attract 0.40% standard asset
         provisioning. The definition of the terms Micro Enterprises, Small Enterprises, and
         Medium Enterprises shall be in terms of Master Circular RPCD.SME&NFS.BC.No.
         5/06.02.31/2013-14 dated July 1, 2013 on Lending to Micro, Small & Medium
         Enterprises (MSME) Sector.

         (v)      While the provisions on individual portfolios are required to be calculated at
         the rates applicable to them, the excess or shortfall in the provisioning, vis-a-vis the
         position as on any previous date, should be determined on an aggregate basis. If the
         provisions required to be held on an aggregate basis are less than the provisions
         held as on November 15, 2008, the provisions rendered surplus should not be
         reversed to Profit and Loss account; but should continue to be maintained at the level
         existed as on November 15, 2008. In case of shortfall determined on aggregate
         basis, the balance should be provided for by debit to Profit and Loss account.



1
  For this purpose, CRE-RH would consist of loans to builders/developers for residential housing projects (except
for captive consumption) under CRE segment. Such projects should ordinarily not include non-residential
commercial real estate. However, integrated housing projects comprising of some commercial space (e.g.
shopping complex, school, etc.) can also be classified under CRE-RH, provided that the commercial area in the
residential housing project does not exceed 10% of the total Floor Space Index (FSI) of the project. In case the
FSI of the commercial area in the predominantly residential housing complex exceeds the ceiling of 10%, the
project loans should be classified as CRE and not CRE-RH.


                                                      24
                                                                               DBOD-MC On IRAC Norms - 2014
       (vi) A high level of unhedged foreign currency exposures of the entities can increase
       the probability of default in times of high currency volatility. 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:


                                      Incremental Provisioning Requirement on the
       Likely Loss / EBID (%)          total credit exposures over and above extant
                                                standard asset provisioning
      Upto15 per cent                                           0
      More than 15 per cent and                              20bps
      upto 30 per cent
      More than 30 per cent and                              40bps
      upto 50 per cent
      More than 50 per cent and                              60bps
      upto 75 per cent
      More than 75 per cent                                  80 bps

5.6    Prudential norms on creation and utilisation of floating provisions

       5.6.1   Principle for creation of floating provisions by banks
       The bank\'s board of directors should lay down approved policy regarding the level to
       which the floating provisions can be created. The bank should hold floating
       provisions for `advances\' and `investments\' separately and the guidelines prescribed
       will be applicable to floating provisions held for both `advances\' & `investment\'
       portfolios.

       5.6.2   Principle for utilisation of floating provisions by banks
       i    The floating provisions should not be used for making specific provisions as per
            the extant prudential guidelines in respect of nonperforming assets or for making
            regulatory provisions for standard assets. The floating provisions can be used
            only     for   contingencies under       extraordinary circumstances for       making
            specific provisions in impaired accounts after obtaining board\'s approval and with
            prior permission of RBI. The Boards of the banks should lay down an approved
            policy as to what circumstances would be considered extraordinary.

       ii   To facilitate banks\' Boards to evolve suitable policies in this regard, it is clarified
            that the extra-ordinary circumstances refer to losses which do not arise in the
            normal course of business and are exceptional and non-recurring in nature.



                                                25
                                                                      DBOD-MC On IRAC Norms - 2014
           These extra-ordinary circumstances could broadly fall under three categories viz.
           General, Market and Credit. Under general category, there can be situations
           where bank is put unexpectedly to loss due to events such as civil unrest or
           collapse of currency in a country. Natural calamities and pandemics may also be
           included in the general category. Market category would include events such as a
           general melt down in the markets, which affects the entire financial system.
           Among the credit category, only exceptional credit losses would be considered as
           an extra-ordinary circumstance.

       5.6.3 Accounting
      Floating provisions cannot be reversed by credit to the profit and loss account. They
      can only be utilised for making specific provisions in extraordinary circumstances as
      mentioned above. Until such utilisation, these provisions can be netted off from gross
      NPAs to arrive at disclosure of net NPAs. Alternatively, they can be treated as part of
      Tier II capital within the overall ceiling of 1.25 % of total risk weighted assets.

      5.6.4   Disclosures
      Banks should make comprehensive disclosures on floating provisions in the \"notes
      on accounts\" to the balance sheet on (a) opening balance in the floating provisions
      account, (b) the quantum of floating provisions made in the accounting year, (c)
      purpose and amount of draw down made during the accounting year, and (d) closing
      balance in the floating provisions account.

5.7   Additional Provisions for NPAs at higher than prescribed rates
      The regulatory norms for provisioning represent the minimum requirement.                 A
      bank may voluntarily make specific provisions for advances at rates which are higher
      than the rates prescribed under existing regulations, to provide for estimated actual
      loss in collectible amount, provided such higher rates are approved by the Board of
      Directors and consistently adopted from year to year. Such additional provisions are
      not to be considered as floating provisions. The additional provisions for NPAs, like
      the minimum regulatory provision on NPAs, may be netted off from gross NPAs to
      arrive at the net NPAs

5.8   Provisions on Leased Assets

      i)      Substandard assets
              a)      15 percent of the sum of the net investment in the lease and the
              unrealised portion of finance income net of finance charge component. The
              terms `net investment in the lease\', `finance income\' and `finance charge\' are
              as defined in `AS 19 Leases\' issued by the ICAI.


                                              26
                                                                     DBOD-MC On IRAC Norms - 2014
              b)      Unsecured (as defined in paragraph 5.4 above) lease exposures,,
              which are identified as `substandard\' would attract additional provision of 10
              per cent, i.e., a total of 25 per cent.



      ii)     Doubtful assets
      100 percent of the extent to which the finance is not secured by the realisable value
      of the leased asset, should be provided for. Realisable value is to be estimated on a
      realistic basis. In addition to the above provision, provision at the following
      rates should be made on the sum of the net investment in the lease and the
      unrealised portion of finance income net of finance charge component of the secured
      portion, depending upon the period for which asset has been doubtful:

                   Period for which the advance has           Provision
                    remained in `doubtful\' category        requirement (%)
                   Up to one year                                 25
                   One to three years                             40
                   More than three years                         100

      iii)    Loss assets
      The entire asset should be written off. If for any reason, an asset is allowed to remain
      in books, 100 percent of the sum of the net investment in the lease and the
      unrealised portion of finance income net of finance charge component should be
      provided for.

5.9   Guidelines for Provisions under Special Circumstances

      5.9.1   Advances granted under rehabilitation packages approved by BIFR/term
      lending institutions
              (i)      In respect of advances 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 substandard or doubtful asset.

              (ii)     As regards the additional facilities sanctioned as per package finalised
              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.

              (iii)     In respect of additional credit facilities granted to SSI units which are
               identified as sick [as defined in Section IV (Para 4.7) of circular
               RPCD.SME&NFS.BC.No.5/06.02.31/2013-14 dated July 1, 2013] 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.

      5.9.2   Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs,


                                               27
                                                                    DBOD-MC On IRAC Norms - 2014
  gold ornaments, government & other securities and life insurance policies would
  attract provisioning requirements as applicable to their asset classification status.

  5.9.3   Treatment of interest suspense account
  Amounts held in Interest Suspense Account should not be reckoned as part of
  provisions. Amounts lying in the Interest Suspense Account should be deducted from
  the relative advances and thereafter, provisioning as per the norms, should be made
  on the balances after such deduction.

  5.9.4   Advances covered by ECGC guarantee
  In the case of advances classified as doubtful and guaranteed by ECGC, provision
  should be made only for the balance in excess of the amount guaranteed by the
  Corporation. Further, while arriving at the provision required to be made for doubtful
  assets, realisable value of the securities should first be deducted from the
  outstanding balance in respect of the amount guaranteed by the Corporation and
  then provision made as illustrated hereunder:

                                      Example

Outstanding Balance                            Rs. 4 lakhs
ECGC Cover                                     50 percent
Period for which the advance has               More than 2 years remained doubtful
remained doubtful                              (say as on March 31, 2014)
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
Provision for unsecured portion of             Rs. 1.25 lakhs (@ 100 percent of
advance                                        unsecured portion)
Provision for secured portion of advance       Rs.0.60 lakhs (@ 40 per cent of the
(as on March 31, 2012)                         secured portion)
                                               Rs.1.85 lakhs (as on March 31, 2014)
Total provision to be made




                                          28
                                                                  DBOD-MC On IRAC Norms - 2014
   5.9.5 Advance covered by guarantees of Credit Guarantee Fund Trust For Micro
   And Small Enterprises (CGTMSE) or Credit Risk Guarantee Fund Trust for Low
   Income Housing (CRGFTLIH)

   In case the advance covered by CGTMSE or CRGFTLIH guarantee becomes non-
   performing, 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. An illustrative
   example is given below:
                                          Example
Outstanding Balance                   Rs. 10 lakhs
                                      75% of the amount outstanding or 75% of the
CGTMSE/CRGFTLIH Cover                 unsecured amount or Rs.37.50 lakh, whichever
                                      is the least
Period for which the advance has      More than 2 years remained doubtful (say
remained doubtful                     as on March 31, 2014)
Value of security held
                                      Rs. 1.50 lakhs

                             Provision required to be made

           Balance outstanding                         Rs.10.00 lakh

           Less: Value of security                     Rs. 1.50 lakh

           Unsecured amount                            Rs. 8.50 lakh
           Less: CGTMSE/CRGFTLIH
           cover (75%)                                 Rs. 6.38 lakh
           Net unsecured and uncovered                 Rs. 2.12 lakh
           portion:
           Provision for Secured portion @             Rs.0.60 lakh
           40% of Rs.1.50 lakh

           Provision for Unsecured &                   Rs.2.12 lakh
           uncovered portion @ 100% of
           Rs.2.12 lakh
           Total provision required                    Rs.2.72 lakh



   5.9.6   Takeout finance
   The lending institution should make provisions against a \'takeout finance\' turning into
   NPA pending its takeover by the taking-over institution. As and when the asset
   is taken-over by the taking-over institution, the corresponding provisions could be
   reversed.

   5.9.7   Reserve for Exchange Rate Fluctuations Account (RERFA)


                                          29
                                                               DBOD-MC On IRAC Norms - 2014
When exchange rate movements of Indian rupee turn adverse, the outstanding
amount of foreign currency denominated loans (where actual disbursement was
made in Indian Rupee) which becomes overdue, goes up correspondingly, with its
attendant implications of provisioning requirements. Such assets should not normally
be revalued. In case such assets need to be revalued as per requirement of
accounting practices or for any other requirement, the following procedure may be
adopted:
            Ø The loss on revaluation of assets has to be booked in the bank\'s
              Profit & Loss Account.

            Ø In addition to the provisioning requirement as per Asset
              Classification, the full amount of the Revaluation Gain, if any, on
              account of foreign exchange fluctuation should be used to make
              provisions against the corresponding assets.

5.9.8   Provisioning for country risk
Banks shall make provisions, with effect from the year ending March 31, 2003, on the
net funded country exposures on a graded scale ranging from 0.25 to 100 percent
according to the risk categories mentioned below. To begin with, banks shall make
provisions as per the following schedule:

                                                         Provisioning
                                      ECGC               Requirement
        Risk category
                                   Classification         (per cent)

        Insignificant                    A1                   0.25
        Low                              A2                   0.25
        Moderate                         B1                     5
        High                             B2                    20
        Very high                        C1                    25
        Restricted                       C2                   100
        Off-credit                       D                    100

Banks are required to make provision for country risk in respect of a country where
its net funded exposure is one per cent or more of its total assets.

The provision for country risk shall be in addition to the provisions required to be held
according to the asset classification status of the asset. However, in the case of
`loss assets\' and `doubtful assets\', provision held, including provision held for
country risk, may not exceed 100% of the outstanding.

Banks may not make any provision for `home country\' exposures i.e. exposure to
India. The exposures of foreign branches of Indian banks to the host country should
be included. Foreign banks shall compute the country exposures of their Indian
branches and shall hold appropriate provisions in their Indian books. However, their


                                        30
                                                            DBOD-MC On IRAC Norms - 2014
exposures to India will be excluded.

Banks may make a lower level of provisioning (say 25% of the requirement) in
respect of short-term exposures (i.e. exposures with contractual maturity of less than
180 days).

5.9.9     Excess Provisions on sale of Standard Asset / NPAs
        (a)   If the sale is in respect of Standard Asset and the sale consideration is
        higher than the book value, the excess provisions may be credited to Profit
        and Loss Account.


        (b)   Excess provisions which arise on sale of NPAs can be admitted as Tier
        II capital subject to the overall ceiling of 1.25% of total Risk Weighted Assets.
        Accordingly, these excess provisions that arise on sale of NPAs would be
        eligible for Tier II status in terms of paragraph 4.3.2 of Master Circular
        DBOD.No.BP.BC.9/21.06.001/2013-14 dated July 01, 2013 on Prudential
        guidelines on Capital Adequacy and Market Discipline - New Capital
        Adequacy Framework (NCAF).

5.9.10 Provisions for Diminution of Fair Value
Provisions for diminution of fair value of restructured advances, both in respect of
Standard Assets as well as NPAs, made on account of reduction in rate of interest
and / or reschedulement of principal amount are permitted to be netted from the
relative asset.

5.9.11 Provisioning norms for Liquidity facility provided for Securitisation transactions

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.

5.9.12 Provisioning requirements for derivative exposures
Credit exposures computed as per the current marked to market value of the
contract, arising on account of the interest rate & foreign exchange derivative
transactions, credit default swaps and gold, shall also attract provisioning
requirement as applicable to the loan assets in the \'standard\' category, of the
concerned counterparties. All conditions applicable for treatment of the provisions for
standard assets would also apply to the aforesaid provisions for derivative and gold
exposures.




                                       31
                                                            DBOD-MC On IRAC Norms - 2014
       5.9.13 Provisioning for housing loans at teaser rates
       It has been observed that some banks are following the practice of sanctioning
       housing loans at teaser rates i.e. at comparatively lower rates of interest in the first
       few years, after which rates are reset at higher rates. This practice raises concern as
       some borrowers may find it difficult to service the loans once the normal interest rate,
       which is higher than the rate applicable in the initial years, becomes effective. It has
       been also observed that many banks at the time of initial loan appraisal, do not take
       into account the repaying capacity of the borrower at normal lending rates. Therefore,
       the standard asset provisioning on the outstanding amount of such loans has been
       increased from 0.40 per cent to 2.00 per cent in view of the higher risk associated
       with them. The provisioning on these assets would revert to 0.40 per cent after 1 year
       from the date on which the rates are reset at higher rates if the accounts remain
       `standard\'.

5.10   Provisioning Coverage Ratio
i.     Provisioning Coverage Ratio (PCR) is essentially the ratio of provisioning to gross
       non-performing assets and indicates the extent of funds a bank has kept aside to
       cover loan losses.

ii.    From a macro-prudential perspective, banks should build up provisioning and capital
       buffers in good times i.e. when the profits are good, which can be used for absorbing
       losses in a downturn. This will enhance the soundness of individual banks, as also
       the stability of the financial sector. It was, therefore, decided that banks should
       augment their provisioning cushions consisting of specific provisions against NPAs
       as well as floating provisions, and ensure that their total provisioning coverage ratio,
       including floating provisions, is not less than 70 per cent. Accordingly, banks were
       advised to achieve this norm not later than end-September 2010.

iii.   Majority of the banks had achieved PCR of 70 percent and had represented to RBI
       whether the prescribed PCR is required to be maintained on an ongoing basis. The
       matter was examined and till such time RBI introduces a more comprehensive
       methodology of countercyclical provisioning taking into account the international
       standards as are being currently developed by Basel Committee on Banking
       Supervision (BCBS) and other provisioning norms, banks were advised that :


              a) the PCR of 70 percent may be with reference to the gross NPA position in
              banks as on September 30, 2010;

              b) the surplus of the provision under PCR vis-a-vis as required as per
              prudential norms should be segregated into an account styled as


                                             32
                                                                   DBOD-MC On IRAC Norms - 2014
                \"countercyclical provisioning buffer\", computation of which may be undertaken
                as per the format given in Annex - 3; and

                c) this buffer will be allowed to be used by banks for making specific
                provisions for NPAs during periods of system wide downturn, with the prior
                approval of RBI2.

iv.   The PCR of the bank should be disclosed in the Notes to Accounts to the Balance
      Sheet.
v.    In terms of the Discussion Paper on Introduction of Dynamic Loan Loss Provisioning
      Framework for Banks in India dated March 30, 2012, banks are required to build up
      `Dynamic Provisioning Account\' during good times and utilise the same during
      downturn. Under the proposed framework, banks are expected to either compute
      parameters such as probability of default, loss given default, etc. for different asset
      classes to arrive at long term average annual expected loss or use the standardised
      parameters prescribed by Reserve Bank of India towards computation of Dynamic
      Provisioning requirement. Dynamic loan loss provisioning framework is expected to
      be in place with improvement in the system. Meanwhile, banks should develop
      necessary capabilities to compute their long term average annual expected loss for
      different asset classes, for switching over to the dynamic provisioning framework.


6.    Guidelines on sale of financial assets to Securitisation Company (SC)/
      Reconstruction Company (RC) (created under the Securitisation and
      Reconstruction of Financial Assets and Enforcement of Security Interest Act,
      2002) and related issues

      6.1       Scope
      These guidelines would be applicable to sale of financial assets enumerated in
      paragraph 6.3 below, by banks/ FIs, for asset reconstruction/ securitisation under the
      Securitisation and Reconstruction of Financial Assets and Enforcement of Security
      Interest Act, 2002.

      6.2       Structure
      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. The prudential guidelines have been grouped
      under the following headings:



            2
             As a countercyclical measure, on February 7, 2014, banks were permitted to utilise upto
            33 per cent of countercyclical provisioning buffer / floating provisions held by them as on
            March 31, 2013, for making specific provisions for non-performing assets, as per the
            policy approved by their Board of Directors.



                                                 33
                                                                        DBOD-MC On IRAC Norms - 2014
       i)     Financial assets which can be sold.

       ii)    Procedure for sale of banks\'/ FIs\'            financial   assets   to   SC/   RC,
              including valuation and pricing aspects.

       iii)   Prudential norms, in the following areas, for banks/ FIs for sale of
              their financial assets to SC/ RC and for investing in bonds/
              debentures/ security receipts and any other securities offered by the
              SC/RC as compensation consequent upon sale of financial assets:

                      a)     Provisioning / Valuation norms

                      b)     Capital adequacy norms

                      c)     Exposure norms

       iv)    Disclosure requirements

       6.3    Financial assets which can be sold
       A financial asset may be sold to the SC/RC by any bank/ FI where the asset is:

       i)     A NPA, including a non-performing bond/ debenture.
       ii)    A Standard Asset where:

              (a)     the asset is under consortium/ multiple banking arrangements,

              (b)     at least 75% by value of the asset is classified as non-
                      performing asset in the books of other banks/FIs, and

              (c)     at least 75% (by value) of the banks / FIs who are under the
                      consortium / multiple banking arrangements agree to the sale of the
                      asset to SC/RC.
       and

       iii)   An asset reported as SMA-2 by the bank / FI to Central Repository for
              Information   on     Large   Credit    (CRILC)      in  terms      of
              DBOD.BP.BC.No.98/21.04.132/2013-14 February 26, 2014

6.4.   Procedure     for    sale    of    banks\'/    FIs\'          financial     assets      to
       SC/ RC, including valuation and pricing aspects

       (a)    The Securitisation and Reconstruction of Financial Assets and Enforcement
       of Security Interest Act, 2002 (SARFAESI Act) allows acquisition of financial assets
       by SC/RC from any bank/ FI on such terms and conditions as may be agreed upon
       between them. This provides for sale of the financial assets on `without recourse\'
       basis, i.e., with the entire credit risk associated with the financial assets being
       transferred to SC/ RC, as well as on `with recourse\' basis, i.e., subject to unrealized
       part of the asset reverting to the seller bank/ FI. Banks/ FIs are, however, directed to
       ensure that the effect of the sale of the financial assets should be such that the asset



                                             34
                                                                   DBOD-MC On IRAC Norms - 2014
is taken off the books of the bank/ FI and after the sale there should not be any
known liability devolving on the banks/ FIs.

(b)       Banks/ FIs, which propose to sell to SC/RC their financial assets should
ensure that the sale is conducted in a prudent manner in accordance with a policy
approved by the Board. The Board shall lay down policies and guidelines covering,
inter alia,

          i.   Financial assets to be sold;

          ii. Norms and procedure for sale of such financial assets;

          iii. Valuation procedure to be followed to ensure that the realisable value of
               financial assets is reasonably estimated;

          iv. Delegation of powers of various functionaries for taking decision on the
              sale of the financial assets; etc.

(c)       Banks/ FIs should ensure that subsequent to sale of the financial assets to
SC/RC, they do not assume any operational, legal or any other type of risks relating
to the financial assets sold.

(d)    (i)        Each bank / FI will make its own assessment of the value offered by
                  the SC / RC for the financial asset and decide whether to accept or
                  reject the offer.

       (ii)       In the case of consortium / multiple banking arrangements, if 75%
                  (by value) of the banks / FIs decide to accept the offer, the remaining
                   banks / FIs will be obligated to accept the offer.

       (iii)      Under no circumstances can a transfer to the SC/ RC be made at a
                  contingent price whereby in the event of shortfall in the realization by
                  the SC/RC, the banks/ FIs would have to bear a part of the shortfall.

       (iv)       Banks using auction process for sale of NPAs to SCs / RCs should be
                  more transparent, including disclosure of the Reserve Price, specifying
                  clauses for non-acceptance of bids, etc. If a bid received is above the
                  Reserve Price and a minimum of 50 per cent of sale proceeds is in
                  cash, and also fulfills the other conditions specified in the Offer
                  Document, acceptance of that bid would be mandatory.


(e)       Banks/ FIs may receive cash or bonds or debentures as sale consideration
for the financial assets sold to SC/RC.

(f)       Bonds/ debentures received by banks/ FIs as sale consideration towards sale
of financial assets to SC/RC will be classified as investments in the books of banks/
FIs.




                                          35
                                                              DBOD-MC On IRAC Norms - 2014
       (g)    Banks may also invest in security receipts, Pass-through certificates (PTC), or
       other bonds/ debentures issued by SC/RC. These securities will also be classified as
       investments in the books of banks/ FIs.

       (h)    In cases of specific financial assets, where it is considered necessary, banks/
       FIs may enter into agreement with SC/RC to share, in an agreed proportion, any
       surplus realised by SC/RC on the eventual realisation of the concerned asset. In
       such cases the terms of sale should provide for a report from the SC/RC to the bank/
       FI on the value realised from the asset. No credit for the expected profit will be taken
       by banks/ FIs until the profit materializes on actual sale.





6.5.   Prudential norms for banks/ FIs for the sale transactions

       (A)    Provisioning/ valuation norms
       (a)    (i)     When a bank / FI sells its financial assets to SC/ RC, on transfer the
                      same will be removed from its books.

              (ii)    If the sale to SC/ RC is at a price below the net book value (NBV) (i.e.,
                      book value less provisions held), the shortfall should be debited to the
                      profit and loss account of that year. Banks can also use countercyclical
                      / floating provisions for meeting any shortfall on sale of NPAs i.e.,
                      when the sale is at a price below the net book value (NBV).

                      However, for assets sold on or after February 26, 2014 and upto
                      March 31, 2015, as an incentive for early sale of NPAs, banks can
                      spread over any shortfall, if the sale value is lower than the NBV, over
                      a period of two years. This facility of spreading over the shortfall will be
                      subject to necessary disclosures in the Notes to Account in Annual
                      Financial Statements of the banks.

              (iii)   For assets sold on or after February 26, 2014, banks can reverse the
                      excess provision on sale of NPAs, if the sale value is for a value higher
                      than the NBV, to its profit and loss account in the year the amounts are
                      received. However, banks can reverse excess provision arising out of
                      sale of NPAs only when the cash received (by way of initial
                      consideration and / or redemption of SRs / PTCs) is higher than the
                      net book value (NBV) of the asset. Further, reversal of excess
                      provision will be limited to the extent to which cash received exceeds
                      the NBV of the asset.

                      With regard to assets sold before February 26, 2014, excess provision,
                      on account of sale value being higher than NBV, should not be
                      reversed but should be utilized to meet the shortfall/ loss on account of
                      sale of other financial assets to SC/RC.

              (iv)    When banks/ FIs invest in the security receipts/ pass-through
                      certificates issued by SC/RC in respect of the financial assets sold
                      by them to the SC/RC, the sale shall be recognised in books of the
                      banks / FIs at the lower of:



                                               36
                                                                     DBOD-MC On IRAC Norms - 2014
               Ø the redemption value of the security receipts/ pass-through
                 certificates, and

               Ø the NBV of the financial asset.

               The above investment should be carried in the books of the bank / FI
               at the price as determined above until its sale or realization, and on
               such sale or realization, the loss or gain must be dealt with in the
               same manner as at (ii) and (iii) above.

(b)    The securities (bonds and debentures) offered by SC / RC should satisfy the
       following conditions:

       (i)     The securities must not have a term in excess of six years.

       (ii)    The securities must carry a rate of interest which is not lower than
               1.5% above the Bank Rate in force at the time of issue.

       (iii)   The securities must be secured by an appropriate charge on the
               assets transferred.

       (iv)    The securities must provide for part or full prepayment in the event
               the SC / RC sells the asset securing the security before the maturity
               date of the security.

       (v).    The commitment of the SC / RC to redeem the securities must be
               unconditional and not linked to the realization of the assets.

       (vi)    Whenever the security is transferred to any other party, notice of
               transfer should be issued to the SC/ RC.

(c)      Investment in debentures/ bonds/ security receipts/ Pass-through certificates
issued by SC/ RC
All instruments received by banks/FIs from SC/RC as sale consideration for financial
assets sold to them and also other instruments issued by SC/ RC in which banks/ FIs
invest will be in the nature of non SLR securities. Accordingly, the valuation,
classification and other norms applicable to investment in non-SLR instruments
prescribed by RBI from time to time would be applicable to bank\'s/ FI\'s investment in
debentures/ bonds/ security receipts/PTCs issued by SC/ RC. However, if any of the
above instruments issued by SC/RC is limited to the actual realisation of the financial
assets assigned to the instruments in the concerned scheme the bank/ FI shall
reckon the Net Asset Value (NAV), obtained from SC/RC from time to time, for
valuation of such investments.

       (B)     Exposure Norms

Banks\'/ FIs\' investments in debentures/ bonds/ security receipts/PTCs issued by a
SC/RC will constitute exposure on the SC/RC. As only a few SC/RC are being set up
now, banks\'/ FIs\' exposure on SC/RC through their investments in debentures/
bonds/security receipts/PTCs issued by the SC/ RC may go beyond their prudential


                                      37
                                                           DBOD-MC On IRAC Norms - 2014
       exposure ceiling. In view of the extra ordinary nature of event, banks/ FIs will be
       allowed, in the initial years, to exceed prudential exposure ceiling on a case-to-case
       basis.

6.6.  Disclosure Requirements
Banks/ FIs, which sell their financial assets to an SC/ RC, shall be required to make the
following disclosures in the Notes on Accounts to their Balance sheets:

Details of financial assets sold during the year to SC/RC for Asset Reconstruction

          a.      No. of accounts

          b.      Aggregate value (net of provisions) of accounts sold to SC / RC

          c.      Aggregate consideration

          d.      Additional consideration realized in respect of accounts transferred in
                  earlier years

          e.      Aggregate gain / loss over net book value.

6.7.   Related Issues
       (a)      SC/ RC will also take over financial assets which cannot be revived and
                which, therefore, will have to be disposed of on a realisation basis. Normally
                the SC/ RC will not take over these assets but act as an agent for recovery for
                which it will charge a fee.

       (b)      Where the assets fall in the above category, the assets will not be removed
                from the books of the bank/ FI but realisations as and when received will be
                credited to the asset account. Provisioning for the asset will continue to be
                made by the bank / FI in the normal course.

7.     Guidelines on purchase/ sale of Non - Performing Financial Assets (other than
       to SC/RC)
In order to increase the options available to banks for resolving their non performing
assets and to develop a healthy secondary market for nonperforming assets, where
securitisation companies and reconstruction companies are not involved, guidelines have
been issued to banks on purchase / sale of Non Performing Assets. Since the sale/purchase
of nonperforming financial assets under this option would be conducted within the financial
system the whole process of resolving the non performing assets and matters related thereto
has to be initiated with due diligence and care warranting the existence of a set of clear
guidelines which shall be complied with by all entities so that the process of resolving non-
performing assets by sale and purchase of NPAs proceeds on smooth and sound lines.
Accordingly guidelines on sale/purchase of nonperforming assets have been formulated and
furnished below. The guidelines may be placed before the bank\'s /FI\'s /NBFC\'s Board and
appropriate steps may be taken for their implementation.


                                              38
                                                                   DBOD-MC On IRAC Norms - 2014
Scope
7.1 These guidelines would be applicable to banks, FIs and NBFCs purchasing/ selling non
performing financial assets, from/ to other banks/FIs/NBFCs (excluding securitisation
companies/ reconstruction companies).

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 nonperforming asset/non
performing investment in the books of the selling bank.

The reference to `bank\' in the guidelines on purchase/sale of nonperforming financial
assets would include financial institutions and NBFCs.

Structure
7.2     The guidelines to be followed by banks purchasing/ selling nonperforming financial
assets from / to other banks are given below. The guidelines have been grouped under the
following headings:

        i)     Procedure for purchase/ sale of non performing financial assets by banks,
               including valuation and pricing aspects.
        ii)    Prudential norms, in the following areas, for banks for purchase/ sale of
               non performing financial assets:

                       a)     Asset classification norms
                       b)     Provisioning norms
                       c)     Accounting of recoveries
                       d)     Capital adequacy norms
                       e)     Exposure norms

        iii)   Disclosure requirements

7.3     Procedure for purchase/ sale of non performing financial assets, including
        valuation and pricing aspects

        i)     A bank which is purchasing/ selling nonperforming financial assets should
        ensure that the purchase/ sale is conducted in accordance with a policy approved
        by the Board. The Board shall lay down policies and guidelines covering, inter alia,

               a)      Non performing financial assets that may be purchased/ sold;

               b)      Norms and procedure for purchase/ sale of such financial assets;

               c)      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;



                                              39
                                                                   DBOD-MC On IRAC Norms - 2014
        d)     Delegation of powers of various functionaries for taking decision on
               the purchase/ sale of the financial assets; etc.

        e)     Accounting policy

ii)     While laying down the policy, the Board shall satisfy itself that the bank has
adequate skills to purchase non performing financial assets and deal with them in an
efficient manner which will result in value addition to the bank. The Board should also
ensure that appropriate systems and procedures are in place to effectively
address the risks that a purchasing bank would assume while engaging in this
activity.

iii)    Banks should, while selling NPAs, work out the net present value of the
estimated cash flows associated with the realisable value of the available securities
net of the cost of realisation. The sale price should generally not be lower than the
net present value arrived at in the manner described above. (same principle should
be used in compromise settlements. As the payment of the compromise amount may
be in instalments, the net present value of the settlement amount should be
calculated and this amount should generally not be less than the net present value of
the realisable value of securities.)

iv)     The estimated cash flows are normally expected to be realised within a period
of three years and at least 10% of the estimated cash flows should be realized in the
first year and at least 5% in each half year thereafter, subject to full recovery within
three years.

v)      A bank may purchase/sell nonperforming financial assets from/to other
banks only on `without recourse\' basis, i.e., the entire credit risk associated with the
nonperforming financial assets should be transferred to the purchasing bank. Selling
bank shall ensure that the effect of the sale of the financial assets should be such
that the asset is taken off the books of the bank and after the sale there should not
be any known liability devolving on the selling bank.

vi)     Banks should ensure that subsequent to sale of the non performing financial
assets to other banks, they do not have any involvement with reference to assets
sold and do not assume operational, legal or any other type of risks relating to the
financial assets sold. Consequently, the specific financial asset should not enjoy the
support of credit enhancements / liquidity facilities in any form or manner.

vii)    Each bank will make its own assessment of the value offered by the
purchasing bank for the financial asset and decide whether to accept or reject the


                                       40
                                                            DBOD-MC On IRAC Norms - 2014
       offer.

       viii)    Under no circumstances can a sale to other banks be made at a contingent
       price whereby in the event of shortfall in the realization by the purchasing banks, the
       selling banks would have to bear a part of the shortfall.



       ix)      Banks shall sell nonperforming financial assets to other banks only on cash
       basis. The entire sale consideration should be received upfront and the asset can be
       taken out of the books of the selling bank only on receipt of the entire sale
       consideration.

       x)       A nonperforming financial asset should be held by the purchasing bank in its
       books at least for a period of 12 months before it is sold to other banks. Banks should
       not sell such assets back to the bank, which had sold the NPFA.

       (xi)     Banks are also permitted to sell/buy homogeneous pool within retail non-
       performing financial assets, on a portfolio basis provided each of the nonperforming
       financial assets of the pool has remained as nonperforming financial asset for at least
       2 years in the books of the selling bank. The pool of assets would be treated as a
       single asset in the books of the purchasing bank.

       xii)     The selling bank shall pursue the staff accountability aspects as per the
       existing instructions in respect of the nonperforming assets sold to other banks.

7.4.   Prudential norms for banks for the purchase/ sale transactions

       (A)      Asset classification norms
       (i)      The nonperforming financial asset purchased, may be classified as `standard\'
       in the books of the purchasing bank for a period of 90 days from the date of
       purchase. Thereafter, the asset classification status of the financial asset purchased,
       shall be determined by the record of recovery in the books of the purchasing
       bank with reference to cash flows estimated while purchasing the asset which should
       be in compliance with requirements in Para 7.3 (iv).

       (ii)     The asset classification status of an existing exposure (other than purchased
       financial asset) to the same obligor in the books of the purchasing bank will continue
       to be governed by the record of recovery of that exposure and hence may be
       different.

       (iii)    Where    the    purchase/sale        does not   satisfy any of   the   prudential


                                                41
                                                                     DBOD-MC On IRAC Norms - 2014
requirements prescribed in these guidelines the asset classification status of the
financial asset in the books of the purchasing bank at the time of purchase shall be
the same as in the books of the selling bank. Thereafter, the asset classification
status will continue to be determined with reference to the date of NPA in the selling
bank.

(iv)    Any restructure/reschedule/rephrase of the repayment schedule or the
estimated cash flow of the nonperforming financial asset by the purchasing bank
shall render the account as a nonperforming asset.

(B)     Provisioning norms

Books of selling bank
i)    When a bank sells its nonperforming financial assets to other banks, the
same will be removed from its books on transfer.

ii)     If the sale is at a price below the net book value (NBV) (i.e., book value less
provisions held), the shortfall should be debited to the profit and loss account of that
year.

iii)    If the sale is for a value higher than the NBV, the excess provision shall not
be reversed but will be utilised to meet the shortfall/ loss on account of sale of other
nonperforming financial assets.

Books of purchasing bank
The asset shall attract provisioning requirement appropriate to its asset classification
        status in the books of the purchasing bank.

(C)     Accounting of recoveries
 Any recovery in respect of a nonperforming asset purchased from other banks
should first be adjusted against its acquisition cost. Recoveries in excess of the
acquisition cost can be recognised as profit.

(D)     Capital Adequacy
For the purpose of capital adequacy, banks should assign 100% risk weights to the
nonperforming financial assets purchased from other banks. In case the non-
performing asset purchased is an investment, then it would attract capital charge for
market risks also. For NBFCs the relevant instructions on capital adequacy would be
applicable.

(E)     Exposure Norms



                                      42
                                                            DBOD-MC On IRAC Norms - 2014
       The purchasing bank will reckon exposure on the obligor of the specific financial
       asset. Hence these banks should ensure compliance with the prudential credit
       exposure ceilings (both single and group) after reckoning the exposures to the
       obligors arising on account of the purchase. For NBFCs the relevant instructions on
       exposure norms would be applicable.


7.5.   Disclosure Requirements

Banks which purchase nonperforming financial assets from other banks shall be required to
make the following disclosures in the Notes on Accounts to their Balance sheets:

       A.       Details of nonperforming financial assets purchased:

                                                                  (Amounts in Rupees crore)
               1.       (a)    No. of accounts purchased during the year
                        (b)    Aggregate outstanding

               2.       (a)    Of these, number of accounts restructured during the year
                        (b)    Aggregate outstanding


       B.       Details of nonperforming financial assets sold:
                                                                  (Amounts in Rupees crore)
               1.       No. of accounts sold
               2.       Aggregate outstanding
               3.       Aggregate consideration received

       C.      The purchasing bank shall furnish all relevant reports to RBI, credit
       information company which has obtained Certificate of Registration from RBI and of
       which the bank is a member etc. in respect of the nonperforming financial
       assets purchased by it.

8.     Writing off of NPAs
8.1    In terms of Section 43(D) of the Income Tax Act 1961, income by way of interest in
relation to such categories of bad and doubtful debts as may be prescribed having regard to
the guidelines issued by the RBI in relation to such debts, shall be chargeable to tax in the
previous year in which it is credited to the bank\'s profit and loss account or received,
whichever is earlier.

8.2    This stipulation is not applicable to provisioning required to be made as indicated
above. In other words, amounts set aside for making provision for NPAs as above are not
eligible for tax deductions.


                                                43
                                                                  DBOD-MC On IRAC Norms - 2014
8.3    Therefore, the banks should either make full provision as per the guidelines or write-
off such advances and claim such tax benefits as are applicable, by evolving appropriate
methodology in consultation with their auditors/tax consultants. Recoveries made in such
accounts should be offered for tax purposes as per the rules.

8.4    Write-off at Head Office Level
Banks may write-off advances at Head Office level, even though the relative advances are
still outstanding in the branch books. However, it is necessary that provision is made as per
the classification accorded to the respective accounts. In other words, if an advance is a
loss asset, 100 percent provision will have to be made therefor.

9. NPA Management ­ Requirement of Effective Mechanism and Granular Data
(i) Asset quality of banks is one of the most important indicators of their financial health.
Banks should, therefore put in place a robust MIS mechanism for early detection of signs of
distress at individual account level as well as at segment level (asset class, industry,
geographic, size, etc.). Such early warning signals should be used for putting in place an
effective preventive asset quality management framework, including a transparent
restructuring mechanism for viable accounts under distress within the prevailing regulatory
framework, for preserving the economic value of those entities in all segments.

(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. There should be
no inconsistencies between information furnished under regulatory / statutory reporting and
the banks\' own MIS reporting. Banks should also have system generated segment wise
information on non-performing assets and restructured assets which may include data on the
opening balances, additions, reductions (upgradations, actual recoveries, write-offs etc.),
closing balances, provisions held, technical write-offs, etc.




                                               44
                                                                   DBOD-MC On IRAC Norms - 2014
                                                                                         PART B
               Prudential Guidelines on Restructuring of Advances by Banks

10.     Background

10.1          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 :


       (i)   Guidelines on restructuring of advances extended to industrial units.
       (ii)  Guidelines on restructuring of advances extended to industrial units under the
             Corporate Debt Restructuring (CDR) Mechanism
       (iii) Guidelines on restructuring of advances extended to Small and Medium
             Enterprises (SME)
       (iv) Guidelines on restructuring of all other advances.

In these four sets of guidelines on restructuring of advances, the differentiations were
broadly made based on whether a borrower is engaged in an industrial activity or a non-
industrial activity. In addition, an elaborate institutional mechanism was laid down for
accounts restructured under CDR Mechanism. The major difference in the prudential
regulations was in the stipulation that subject to certain conditions, the accounts of
borrowers engaged in industrial activities (under CDR Mechanism, SME Debt Restructuring
Mechanism and outside these mechanisms) continued to be classified in the existing asset
classification category upon restructuring. 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. Another difference was that the prudential regulations
covering the CDR Mechanism and restructuring of advances extended to SMEs were more
detailed and comprehensive than that covering the restructuring of the rest of the advances
including the advances extended to the industrial units, outside CDR Mechanism. Further,
the CDR Mechanism was made available only to the borrowers engaged in industrial
activities.


10.2          Since the principles underlying the restructuring of all advances were identical, it
was felt that the prudential regulations needed to be aligned in all cases. Accordingly, the
prudential norms across all categories of debt restructuring mechanisms, other than those
restructured on account of natural calamities which will continue to be covered by the extant
guidelines issued by the RPCD, were harmonised in August 2008.


10.3 In the backdrop of extraordinary rise in restructured standard advances, these
prudential norms were further revised by taking into account the recommendations of the



                                                45
                                                                     DBOD-MC On IRAC Norms - 2014
Working Group (Chairman: Shri B. Mahapatra) to review the existing prudential guidelines
on restructuring of advances by banks/financial institutions. These prudential norms
applicable to all restructurings including those under CDR Mechanism are included in this
circular. The details of the institutional / organizational framework for CDR Mechanism and
SME Debt Restructuring Mechanism are given in Annex - 4.


10.4        The CDR Mechanism (Annex - 4) will also be available to the corporates
engaged in non-industrial activities, if they are otherwise eligible for restructuring as per the
criteria laid down for this purpose. Further, banks are also encouraged to strengthen the co-
ordination among themselves in the matter of restructuring of consortium / multiple banking
accounts, which are not covered under the CDR Mechanism.


11.    Key Concepts
       Key concepts used in these guidelines are defined in Annex - 5.


12.    General Principles and Prudential Norms for Restructured Advances
The principles and prudential norms laid down in this paragraph are applicable to all
advances including the borrowers, who are eligible for special regulatory treatment for asset
classification as specified in para 15.

12.1 Eligibility criteria for restructuring of advances
       12.1.1        Banks may restructure the accounts classified under \'standard\', \'sub-
       standard\' and \'doubtful\' categories.

       12.1.2        Banks cannot reschedule / restructure / renegotiate borrowal accounts
       with retrospective effect. While a restructuring proposal is under consideration, the
       usual asset classification norms would continue to apply. The process of re-
       classification of an asset should not stop merely because restructuring proposal is
       under consideration. The asset classification status as on the date of approval of the
       restructured package by the competent authority would be relevant to decide the
       asset classification status of the account after restructuring / rescheduling /
       renegotiation. In case there is undue delay in sanctioning a restructuring package and
in the meantime the asset classification status of the account undergoes deterioration,        it
would be a matter of supervisory concern.

       12.1.3        Normally, restructuring cannot take place unless alteration / changes
       in the original loan agreement are made with the formal consent / application of the
       debtor. However, the process of restructuring can be initiated by the bank in
       deserving cases subject to customer agreeing to the terms and conditions.


                                               46
                                                                    DBOD-MC On IRAC Norms - 2014
12.1.4        No account will be taken up for restructuring by the banks unless the
financial viability is established and there is a reasonable certainty of repayment from
the borrower, as per the terms of restructuring package. Any restructuring done
without looking into cash flows of the borrower and assessing the viability of the
projects / activity financed by banks would be treated as an attempt at ever greening a
weak credit facility and would invite supervisory concerns / action. Banks should
accelerate the recovery measures in respect of such accounts. The viability should be
determined by the banks based on the acceptable viability benchmarks determined by
them, which may be applied on a case-by-case basis, depending on merits of each
case. Illustratively, the parameters may include the Return on Capital Employed, Debt
Service Coverage Ratio, Gap between the Internal Rate of Return and Cost of Funds
and the amount of provision required in lieu of the diminution in the fair value of the
restructured advance. As different sectors of economy have different performance
indicators, it will be desirable that banks adopt these broad benchmarks with suitable
modifications. Therefore, it has been decided that the viability should be determined
by the banks based on the acceptable viability parameters and benchmarks for each
parameter determined by them. The benchmarks for the viability parameters adopted
by the CDR Mechanism are given in the Appendix to Part ­ B of this Master Circular
and individual banks may suitably adopt them with appropriate adjustments, if any, for
specific sectors while restructuring of accounts in non-CDR cases.

12.1.5        While the borrowers indulging in frauds and malfeasance will continue
to remain ineligible for restructuring, banks may review the reasons for classification
of the borrowers as wilful defaulters, specially in old cases where the manner of
classification of a borrower as a wilful defaulter was not transparent, and satisfy itself
that the borrower is in a position to rectify the wilful default. The restructuring of such
cases may be done with Board\'s approval, while for such accounts the restructuring
under the CDR Mechanism may be carried out with the approval of the Core Group
only.


12.1.6        BIFR cases are not eligible for restructuring without their express
approval. CDR Core Group in the case of advances restructured under CDR
Mechanism, the lead bank in the case of SME Debt Restructuring Mechanism and the
individual banks in other cases, may consider the proposals for restructuring in such
cases, after ensuring that all the formalities in seeking the approval from BIFR are
completed before implementing the package.




                                        47
                                                              DBOD-MC On IRAC Norms - 2014
12.2 Asset classification norms
Restructuring of advances could take place in the following stages:
            (a)     before commencement of commercial production / operation;
            (b)     after commencement of commercial production / operation but before
                    the asset has been classified as \'sub-standard\';
            (c)     after commencement of commercial production / operation and the
                    asset has been classified as \'sub-standard\' or \'doubtful\'.

       12.2.1       The accounts classified as \'standard assets\' should be immediately re-
       classified as \'sub-standard assets\' upon restructuring.

      12.2.2        The non-performing assets, upon restructuring, would continue to have
      the same asset classification as prior to restructuring and slip into further lower asset
      classification categories as per extant asset classification norms with reference to the
      pre-restructuring repayment schedule.

      12.2.3        Standard accounts classified as NPA and NPA accounts retained in the
      same category on restructuring by the bank should be upgraded only when all the
      outstanding loan/facilities in the account perform satisfactorily during the `specified
      period\' (Annex - 5), i.e. principal and interest on all facilities in the account are
      serviced as per terms of payment during that period.

      12.2.4        In case, however, satisfactory performance after the specified period is
      not evidenced, the asset classification of the restructured account would be governed
      as per the applicable prudential norms with reference to the pre-restructuring payment
      schedule.

      12.2.5        Any additional finance may be treated as \'standard asset\' during the
      specified period (Annex ­ 5) under the approved restructuring package. However, in
      the case of accounts where the pre-restructuring facilities were classified as \'sub-
      standard\' and \'doubtful\', interest income on the additional finance should be
      recognised only on cash basis. If the restructured asset does not qualify for
      upgradation at the end of the above specified period, the additional finance shall be
      placed in the same asset classification category as the restructured debt.

      12.2.6        If a restructured asset, which is a standard asset on restructuring in
      terms of para 14.5.2, is subjected to restructuring on a subsequent occasion, it should
      be classified as substandard. If the restructured asset is a sub-standard or a doubtful
      asset and is subjected to restructuring, on a subsequent occasion, its asset
      classification will be reckoned from the date when it became NPA on the first
      occasion. However, such advances restructured on second or more occasion may be



                                              48
                                                                  DBOD-MC On IRAC Norms - 2014
       allowed to be upgraded to standard category after the specified period (Annex-5) in
       terms of the current restructuring package, subject to satisfactory performance.

12.3 Income recognition norms
Subject to provisions of paragraphs 12.2.5, 13.2 and 14.2, interest income in respect of
restructured accounts classified as \'standard assets\' will be recognized on accrual basis and
that in respect of the accounts classified as \'non-performing assets\' will be recognized on
cash basis.

12.4 Provisioning norms
       12.4.1         Provision on restructured advances
       (i) Banks will hold provision against the restructured advances as per the extant
                provisioning norms.

       (ii) Restructured accounts classified as standard advances will attract a higher
       provision (as prescribed from time to time) in the first two years from the date of
       restructuring. In cases of moratorium on payment of interest/principal after
       restructuring, such advances will attract the prescribed higher provision for the period
       covering moratorium and two years thereafter.

       (iii) Restructured accounts classified as non-performing advances, when upgraded to
       standard category will attract a higher provision (as prescribed from time to time) in
       the first year from the date of upgradation.

       (iv) The above-mentioned higher provision on restructured standard advances (2.75
       per cent as prescribed vide circular dated November 26, 2012) would increase to 5
       per cent in respect of new restructured standard accounts (flow) with effect from June
       1, 2013 and increase in a phased manner for the stock of restructured standard
       accounts as on May 31, 2013 as under :


   ·   3.50 per cent - with effect from March 31, 2014 (spread over the four quarters of
       2013-14)
   ·   4.25 per cent - with effect from March 31, 2015 (spread over the four quarters of
       2014-15)
   ·   5.00 per cent - - with effect from March 31, 2016 (spread over the four quarters of
       2015-16)

       12.4.2         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


                                              49
                                                                   DBOD-MC On IRAC Norms - 2014
         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 12.4.1 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 or base rate3 (whichever is applicable to the
         borrower) 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
         or base rate (whichever is applicable to the borrower) 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 be followed 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) It was observed that on a few occasions, there were divergences in the
         calculation of diminution of fair value of accounts by banks. Illustratively,
         divergences could occur if banks are not appropriately factoring in the term
         premium on account of elongation of repayment period on restructuring. In
         such a case the term premium used while calculating the present value of

3
   This change has been introduced as a result of the introduction of Base Rate System w.e.f. 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\'.




                                                 50
                                                                           DBOD-MC On IRAC Norms - 2014
cash flows after restructuring would be higher than the term premium used
while calculating the present value of cash flows before restructuring. Further,
the amount of principal converted into debt/equity instruments on restructuring
would need to be held under AFS and valued as per usual valuation norms.
Since these instruments are getting marked to market, the erosion in fair
value gets captured on such valuation. Therefore, for the purpose of arriving
at the erosion in the fair value, the NPV calculation of the portion of principal
not converted into debt/equity has to be carried out separately. However, the
total sacrifice involved for the bank would be NPV of the above portion plus
valuation loss on account of conversion into debt/equity instruments.

Banks are therefore advised that they should correctly capture the diminution
in fair value of restructured accounts as it will have a bearing not only on the
provisioning required to be made by them but also on the amount of sacrifice
required from the promoters (Ref. para 15.2.2.iv). Further, there should not be
any effort on the part of banks to artificially reduce the net present value of
cash flows by resorting to any sort of financial engineering. Banks are also
advised to put in place a proper mechanism of checks and balances to ensure
accurate calculation of erosion in the fair value of restructured accounts.

(iii)       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.


(iv)        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.

(v)         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 or base rate (whichever is


                               51
                                                     DBOD-MC On IRAC Norms - 2014
                applicable to the borrower), 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.

                (vi)        If due to lack of expertise / appropriate infrastructure, a bank finds
                it difficult to ensure computation of diminution in the fair value of advances, 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 per cent of the total exposure, in respect of all restructured accounts
                where the total dues to bank(s) are less than rupees one crore.

       12.4.3          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.


12.5 Risk-Weights
a. Restructured housing loans should be risk weighted with an additional risk weight of 25
percentage points.

b. With a view to reflecting a higher element of inherent risk which may be latent in entities
whose obligations have been subjected to restructuring / rescheduling either by banks on
their own or along with other bankers / creditors, the unrated standard / performing claims on
corporates should be assigned a higher risk weight of 125% until satisfactory performance
under the revised payment schedule has been established for one year from the date when
the first payment of interest / principal falls due under the revised schedule.

c. For details on risk weights, Master Circular DBOD.No.BP.MC.2/21.06.201/2013-14 dated
July 1, 2013 on `Basel III Capital Regulations\' may be referred.

13.    Prudential Norms for Conversion of Principal into Debt / Equity
13.1 Asset classification norms
       A part of the outstanding principal amount can be converted into debt or equity
instruments as part of restructuring. The debt / equity instruments so created will be
classified in the same asset classification category in which the restructured advance has
been classified. Further movement in the asset classification of these instruments would also
be determined based on the subsequent asset classification of the restructured advance.

13.2 Income recognition norms
       13.2.1          Standard Accounts


                                                52
                                                                     DBOD-MC On IRAC Norms - 2014
      In the case of restructured accounts classified as \'standard\', the income, if any,
      generated by these instruments may be recognised on accrual basis.

      13.2.2        Non- Performing Accounts
      In the case of restructured accounts classified as non-performing assets, the income,
      if any, generated by these instruments may be recognised only on cash basis.

13.3 Valuation and provisioning norms
These instruments should be held under AFS and valued as per usual valuation norms.
Equity classified as standard asset should be valued either at market value, if quoted, or at
break-up value, if not quoted (without considering the revaluation reserve, if any) which is to
be ascertained from the company\'s latest balance sheet. In case the latest balance sheet is
not available, the shares are to be valued at Re. 1. Equity instrument classified as NPA
should be valued at market value, if quoted, and in case where equity is not quoted ,it should
be valued at Re. 1. Depreciation on these instruments should not be offset against the
appreciation in any other securities held under the AFS category.


14.   Prudential Norms for Conversion of Unpaid Interest into \'Funded Interest Term
      Loan\' (FITL), Debt or Equity Instruments

14.1 Asset classification norms
The FITL / debt or equity instrument created by conversion of unpaid interest will be
classified in the same asset classification category in which the restructured advance has
been classified. Further movement in the asset classification of FITL / debt or equity
instruments would also be determined based on the subsequent asset classification of the
restructured advance.
14.2 Income recognition norms
      14.2.1        The income, if any, generated by these instruments may be recognised
      on accrual basis, if these instruments are classified as \'standard\', and on cash basis
      in the cases where these have been classified as a non-performing asset.


      14.2.2        The unrealised income represented by FITL / Debt or equity instrument
      should have a corresponding credit in an account styled as \"Sundry Liabilities
      Account (Interest Capitalization)\".


      14.2.3        In the case of conversion of unrealised interest income into equity,
      which is quoted, interest income can be recognized after the account is upgraded to
      standard category at market value of equity, on the date of such upgradation, not
      exceeding the amount of interest converted into equity.



                                              53
                                                                    DBOD-MC On IRAC Norms - 2014
      14.2.4         Only on repayment in case of FITL or sale / redemption proceeds of the
            debt / equity instruments, the amount received will be recognized in the P&L
      Account, while simultaneously reducing the balance in the \"Sundry Liabilities Account
      (Interest Capitalisation)\".



       14.2.5 It is learnt that banks have not uniformly adhered to these instructions. It is
      reiterated that whenever the unrealised interest income of a loan is converted into
      FITL / Debt or equity instrument, banks must have a corresponding credit in an
      account styled as \"Sundry Liabilities Account (Interest Capitalization). Banks are
      advised to strictly adhere to these instructions and rectify the position, if required,
      before finalising their balance sheets for the financial year 2013-14.



14.3 Valuation & Provisioning norms
Valuation and provisioning norms would be as per para 13.3 above. The depreciation, if any,
on valuation may be charged to the Sundry Liabilities (Interest Capitalisation) Account.

15.   Special Regulatory Treatment for Asset Classification
15.1 The special regulatory treatment for asset classification, in modification to the
provisions in this regard stipulated in para 12, will be available to the borrowers engaged in
important business activities, subject to compliance with certain conditions as e numerated
in para 15.2 below. Such treatment is not extended to the following categories of advances:

            i.      Consumer and personal advances;
            ii.     Advances classified as Capital market exposures;
            iii.    Advances classified as commercial real estate exposures

The asset classification of these three categories accounts as well as that of other accounts
which do not comply with the conditions enumerated in para 15.2, will be governed by the
prudential norms in this regard described in para 12 above.



15.2 Elements of special regulatory framework
The special regulatory treatment has the following two components:
            (i)      Incentive for quick implementation of the restructuring package.
            (ii)     Retention of the asset classification of the restructured account in the
                     pre-restructuring asset classification category

      15.2.1         Incentive for quick implementation of the restructuring package



                                              54
                                                                   DBOD-MC On IRAC Norms - 2014
              As stated in para 12.1.2, during the pendency of the application for
restructuring of the advance with the bank, the usual asset classification norms would
continue to apply. The process of reclassification of an asset should not stop merely
because the application is under consideration. However, as an incentive for quick
implementation of the package, if the approved package is implemented by the bank
as per the following time schedule, the asset classification status may be restored to
the position which existed when the reference was made to the CDR Cell in respect of
cases covered under the CDR Mechanism or when the restructuring application was
received by the bank in non-CDR cases:


     (i)      Within 120 days from the date of approval under the CDR Mechanism.
     (ii)     Within 120 days from the date of receipt of application by the bank in
                    cases other than those restructured under the CDR Mechanism.

15.2.2        Asset classification benefits
Subject to the compliance with the undernoted conditions in addition to the
adherence to the prudential framework laid down in para 12:
     (i)      In modification to para 12.2.1, an existing \'standard asset\' will not be
              downgraded to the sub-standard category upon restructuring.
     (ii)     In modification to para 12.2.2, during the specified period, the asset
              classification of the sub-standard / doubtful accounts will not deteriorate
              upon restructuring, if satisfactory performance is demonstrated during
                the specified period.

However, these benefits will be available subject to compliance with the following
conditions:
     i)       The dues to the bank are \'fully secured\' as defined in Annex - 5. The
     condition of being fully secured by tangible security will not be applicable in the
     following cases:
              (a)   MSE borrowers, where the outstanding is up to Rs.25 lakh.
              (b)   Infrastructure projects, provided the cash flows generated from
                    these projects are adequate for repayment of the advance, the
                    financing bank(s) have in place an appropriate mechanism to
                    escrow the cash flows, and also have a clear and legal first claim
                    on these cash flows.
     ii)      The unit becomes viable in 8 years, if it is engaged in infrastructure
     activities, and in 5 years in the case of other units.




                                        55
                                                              DBOD-MC On IRAC Norms - 2014
    iii)      The repayment period of the restructured advance including the
    moratorium, if any, does not exceed 15 years in the case of infrastructure
    advances and 10 years in the case of other advances. The aforesaid ceiling of
    10 years would not be applicable for restructured home loans; in these cases the
    Board of Directors of the banks should prescribe the maximum period for
    restructured advance keeping in view the safety and soundness of the
    advances.

    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. This stipulation is the minimum and banks may decide on a
    higher sacrifice by promoters depending on the riskiness of the project and
    promoters\' ability to bring in higher sacrifice amount. Further, such higher
    sacrifice may invariably be insisted upon in larger accounts, especially CDR
    accounts. The promoters\' sacrifice should invariably be brought upfront while
    extending the restructuring benefits to the borrowers. The term \'bank\'s sacrifice\'
    means the amount of \"erosion in the fair value of the advance\" or \"total
    sacrifice\", to be computed as per the methodology enumerated in para 12.4.2 (i)
    and (ii) above.

    (Prior to May 30, 2013, if banks were convinced that the promoters face
    genuine difficulty in bringing their share of the sacrifice immediately and need
    some extension of time to fulfill their commitments, the promoters could be
    allowed to bring in 50% of their sacrifice, i.e. 50% of 15%, upfront and the
    balance within a period of one year. However, in such cases, if the promoters fail
    to bring in their balance share of sacrifice within the extended time limit of one
    year, the asset classification benefits derived by banks will cease to accrue and
    the banks will have to revert to classifying such accounts as per the asset
    classification norms specified under para 12.2 of this circular.)

    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.

    vi) The restructuring under consideration is not a \'repeated restructuring\' as
    defined in para (v) of Annex - 5.


15.2.3. In line with the recommendation of the Working Group (Chairman: Shri B.
Mahapatra) to review the existing prudential guidelines on restructuring of advances
by banks/financial institutions, the extant incentive for quick implementation of
restructuring package and asset classification benefits (paragraph 15.2.1 & 15.2.2
above)     available on restructuring on fulfilling the conditions   will however be


                                        56
                                                           DBOD-MC On IRAC Norms - 2014
       withdrawn for all restructurings effective from April 1, 2015 with the exception of
       provisions related to changes in DCCO in respect of infrastructure as well as non-
       infrastructure project loans (please see para 4.2.15). It implies that with effect from
       April 1, 2015, a standard account on restructuring (for reasons other than change in
       DCCO) would be immediately classified as sub-standard on restructuring as also the
       non-performing assets, upon restructuring, would continue to have the same asset
       classification as prior to restructuring and slip into further lower asset classification
       categories as per the extant asset classification norms with reference to the pre-
       restructuring repayment schedule.

16.    Miscellaneous
16.1          The banks should decide on the issue regarding convertibility (into equity) option
as a part of restructuring exercise whereby the banks / financial institutions shall have the
right to convert a portion of the restructured amount into equity, keeping in view the statutory
requirement under Section 19 of the Banking Regulation Act, 1949, (in the case of banks)
and relevant SEBI regulations.

16.2   Conversion of debt into preference shares should be done only as a last resort and
such conversion of debt into equity/preference shares should, in any case, be restricted to a
cap (say 10 per cent of the restructured debt). Further, any conversion of debt into equity
should be done only in the case of listed companies.

16.3 Acquisition of equity shares / convertible bonds / convertible debentures in companies
by way of conversion of debt / overdue interest can be done without seeking prior approval
from RBI, even if by such acquisition the prudential capital market exposure limit prescribed
by the RBI is breached. However, this will be subject to reporting of such holdings to RBI,
Department of Banking Supervision (DBS), every month along with the regular DSB Return
on Asset Quality. Nonetheless, banks will have to comply with the provisions of Section
19(2) of the Banking Regulation Act, 1949.

16.4          Acquisition of non-SLR securities by way of conversion of debt is exempted from
the mandatory rating requirement and the prudential limit on investment in unlisted non-SLR
securities, prescribed by the RBI, subject to periodical reporting to the RBI in the aforesaid
DSB return.


16.5 Banks may consider incorporating in the approved restructuring packages creditor\'s
rights to accelerate repayment and the borrower\'s right to pre pay. Further, all restructuring
packages must incorporate `Right to recompense\' clause and it should be based on certain
performance criteria of the borrower. In any case, minimum 75 per cent of the recompense


                                               57
                                                                    DBOD-MC On IRAC Norms - 2014
amount should be recovered by the lenders and in cases where some facility under
restructuring has been extended below base rate, 100 per cent of the recompense amount
should be recovered.

16.6 As stipulating personal guarantee will ensure promoters\' \"skin in the game\" or
commitment to the restructuring package, promoters\' personal guarantee should be obtained
in all cases of restructuring and corporate guarantee cannot be accepted as a substitute for
personal guarantee. However, corporate guarantee can be accepted in those cases where
the promoters of a company are not individuals but other corporate bodies or where the
individual promoters cannot be clearly identified.


17.   Disclosures
With effect from the financial year 2012-13, banks should disclose in their published annual
Balance Sheets, under \"Notes on Accounts\", information relating to number and amount of
advances restructured, and the amount of diminution in the fair value of the restructured
advances as per the format given in Annex - 6. The information would be required for
advances restructured under CDR Mechanism, SME Debt Restructuring Mechanism and
other categories separately. Banks must disclose the total amount outstanding in all the
accounts / facilities of borrowers whose accounts have been restructured along with the
restructured part or facility. This means even if only one of the facilities / accounts of a
borrower has been restructured, the bank should also disclose the entire outstanding
amount pertaining to all the facilities / accounts of that particular borrower. The disclosure
format prescribed in Annex-6, inter-alia, includes the following:

       i. details of accounts restructured on a cumulative basis excluding the standard
             restructured accounts which cease to attract higher provision and risk weight (if
             applicable);
       ii. provisions made on restructured accounts under various categories; and
       iii. details of movement of restructured accounts.

This implies that once the higher provisions and risk weights (if applicable) on restructured
advances (classified as standard either abinitio or on upgradation from NPA category) revert
to the normal level on account of satisfactory performance during the prescribed period,
such advances should no longer be required to be disclosed by banks as restructured
accounts in the \"Notes on Accounts\" in their Annual Balance Sheets. However, the provision
for diminution in the fair value of restructured accounts on such restructured accounts should
continue to be maintained by banks as per the existing instructions.

18.    It has been reiterated that the basic objective of restructuring is to preserve economic
value of units, not ever-greening of problem accounts. This can be achieved by banks and



                                               58
                                                                    DBOD-MC On IRAC Norms - 2014
the borrowers only by careful assessment of the viability, quick detection of weaknesses in
accounts and a time-bound implementation of restructuring packages.




                                            59
                                                                DBOD-MC On IRAC Norms - 2014
                                                                                          Appendix to Part B
Broad benchmarks for the viability parameters
         i.    Return on capital employed should be at least equivalent to 5 year
               Government security yield plus 2 per cent.
        ii.    The debt service coverage ratio should be greater than 1.25 within the 5
               years period in which the unit should become viable and on year to year basis
               the ratio should be above 1. The normal debt service coverage ratio for 10
               years repayment period should be around 1.33.
        iii.   The benchmark gap between internal rate of return and cost of capital should
               be at least 1per cent.
        iv.    Operating and cash break even points should be worked out and they should
               be comparable with the industry norms.
        v.     Trends of the company based on historical data and future projections should
               be comparable with the industry. Thus behaviour of past and future EBIDTA
               should be studied and compared with industry average.
        vi.    Loan life ratio (LLR), as defined below should be 1.4, which would give a
               cushion of 40% to the amount of loan to be serviced.


       Present value of total available cash flow (ACF) during the loan life period (including
                                               interest and principal)
       LLR= ----------------------------------------------------------------------------------------------
                                        Maximum amount of loan




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                                                                                 DBOD-MC On IRAC Norms - 2014
                                                                                         Part C

C-1 Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair
Recovery for Lenders: Framework for Revitalising Distressed Assets in the Economy
19. Introduction
In the backdrop of the slowdown of the Indian economy, and resulting increase in Non-
Performing Assets (NPAs) and restructured accounts in the Indian banking system during
the recent years, a need was felt to ensure that the banking system recognise financial
distress early, takes prompt steps to resolve it, and ensures fair recovery for lenders and
investors. Accordingly, a Framework for revitalising distressed assets in the economy was
placed on RBI website on December 17, 2013 as a Discussion Paper for comments by
January 1, 2014. Taking into account the comments received, the Reserve Bank issued the
`Framework for Revitalising Distressed Assets in the Economy\' on its website on January 30,
2014, outlining a corrective action plan that will incentivize early identification of problem
account, timely restructuring of accounts which are considered to be viable, and taking
prompt steps by lenders for recovery or sale of unviable accounts.

Guidelines on Joint Lenders\' Forum (JLF) and Corrective Action Plan (CAP)


20. These guidelines will be applicable for lending under Consortium and Multiple Banking
Arrangements (MBA) [except instructions in paragraphs 21.1, 26.1, 27 & 28 below, which will
be applicable in all cases of lending], and should be read with our prudential norms on
`Restructuring of Advances by banks\' as contained in Part B of this Master Circular and any
other instruction issued in this regard from time to time.


21. Formation of Joint Lenders\' Forum
21.1 As proposed in paragraph 2.1.1 of the Framework, before a loan account turns into a
NPA, banks are required to identify incipient stress in the account by creating three sub-
categories under the Special Mention Account (SMA4) category as given in the table below:


 SMA Sub-                                    Basis for classification
 categories
SMA-0              Principal or interest payment not overdue for more than 30 days but
                   account showing signs of incipient stress (Please see Appendix to Part C)
SMA-1              Principal or interest payment overdue between 31-60 days
SMA-2              Principal or interest payment overdue between 61-90 days



4
   `Special Mention Account\' (SMA) was introduced in terms of RBI Circular No.
DBS.CO.OSMOS/B.C./4/33.04.006/2002-2003 dated September 12, 2002, whereby banks are
required to identify incipient stress in the account by creating a sub-asset category viz., SMA.


                                               61
                                                                   DBOD-MC On IRAC Norms - 2014
21.2 It was also proposed in the Framework that the Reserve Bank of India (RBI) will set up
a Central Repository of Information on Large Credits (CRILC) to collect, store, and
disseminate credit data to lenders. Accordingly, our Department of Banking Supervision
(DBS) has advised vide circular DBS.No.OSMOS.9862/33.01.018/2013-14 dated February
13, 2014 on `Central Repository of Information on Large Credits (CRILC) ­ Revision in
Reporting\' that banks will be required to report credit information, including classification of
an account as SMA to CRILC on all their borrowers having aggregate fund-based and non-
fund based exposure of Rs.50 million and above with them. 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)\'.

21.3 Banks are advised that as soon as an account is reported by any of the lenders to
CRILC as SMA-2, they should mandatorily form a committee to be called Joint Lenders\'
Forum (JLF) if the aggregate exposure (AE) [fund based and non-fund based taken together]
of lenders in that account is Rs 1000 million and above. Lenders also have the option of
forming a JLF even when the AE in an account is less than Rs.1000 million and/or when the
account is reported as SMA-0 or SMA-1.


21.4 While the existing Consortium Arrangement for consortium accounts will serve as JLF
with the Consortium Leader as convener, for accounts under Multiple Banking Arrangements
(MBA), the lender with the highest AE will convene JLF at the earliest and facilitate
exchange of credit information on the account. In case there are multiple consortium of
lenders for a borrower (e.g. separate consortium for working capital and term loans), the
lender with the highest AE will convene the JLF.

21.5 It is possible that a borrower may request the lender/s, with substantiated grounds, for
formation of a JLF on account of imminent stress. When such a request is received by a
lender, the account should be reported to CRILC as SMA-0, and the lenders should also
form the JLF immediately if the AE is Rs. 1000 million and above. It is, however, clarified that
for the present, JLF formation is optional in other cases of SMA-0 reporting.


21.6 All the lenders should formulate and sign an Agreement (which may be called JLF
agreement) incorporating the broad rules for the functioning of the JLF. The Indian Banks\'
Association (IBA) has prepared a Master JLF agreement and operational guidelines for JLF
which can be adopted by all lenders. The JLF should explore the possibility of the borrower
setting right the irregularities/weaknesses in the account. The JLF may invite representatives
of the Central/State Government/Project authorities/Local authorities, if they have a role in
the implementation of the project financed.



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                                                                   DBOD-MC On IRAC Norms - 2014
21.7 While JLF formation and subsequent corrective actions will be mandatory in accounts
having AE of Rs.1000 million and above, in other cases also the lenders will have to monitor
the asset quality closely and take corrective action for effective resolution as deemed
appropriate.

22 Corrective Action Plan (CAP) by JLF


22.1 The JLF may explore various options to resolve the stress in the account. The intention
is not to encourage a particular resolution option, e.g. restructuring or recovery, but to arrive
at an early and feasible solution to preserve the economic value of the underlying assets as
well as the lenders\' loans. The options under Corrective Action Plan (CAP) by the JLF would
generally include:

(a) Rectification - Obtaining a specific commitment from the borrower to regularise the
account so that the account comes out of SMA status or does not slip into the NPA category.
The commitment should be supported with identifiable cash flows within the required time
period and without involving any loss or sacrifice on the part of the existing lenders. If the
existing promoters are not in a position to bring in additional money or take any measures to
regularise the account, the possibility of getting some other equity/strategic investors to the
company may be explored by the JLF in consultation with the borrower. These measures are
intended to turn-around the entity/company without any change in terms and conditions of
the loan. The JLF may also consider providing need based additional finance to the
borrower, if considered necessary, as part of the rectification process. However, it should be
strictly ensured that additional financing is not provided with a view to ever-greening the
account.

(b) Restructuring - Consider the possibility of restructuring the account if it is prima facie
viable and the borrower is not a wilful defaulter, i.e., there is no diversion of funds, fraud or
malfeasance, etc. At this stage, commitment from promoters for extending their personal
guarantees along with their net worth statement supported by copies of legal titles to assets
may be obtained along with a declaration that they would not undertake any transaction that
would alienate assets without the permission of the JLF. Any deviation from the commitment
by the borrowers affecting the security/recoverability of the loans may be treated as a valid
factor for initiating recovery process. For this action to be sustainable, the lenders in the JLF
may sign an Inter Creditor Agreement (ICA) and also require the borrower to sign the Debtor
Creditor Agreement (DCA) which would provide the legal basis for any restructuring process.
The formats used by the Corporate Debt Restructuring (CDR) mechanism for ICA and DCA




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                                                                    DBOD-MC On IRAC Norms - 2014
could be considered, if necessary with appropriate changes. Further, a `stand still\'5 clause
could be stipulated in the DCA to enable a smooth process of restructuring. The `stand-still\'
clause does not mean that the borrower is precluded from making payments to the lenders.
The ICA may also stipulate that both secured and unsecured creditors need to agree to the
final resolution.

(c) Recovery - Once the first two options at (a) and (b) above are seen as not feasible, due
recovery process may be resorted to. The JLF may decide the best recovery process to be
followed, among the various legal and other recovery options available, with a view to
optimising the efforts and results.

22.2 The decisions agreed upon by a minimum of 75% of creditors by value and 60% of
creditors by number in the JLF would be considered as the basis for proceeding with the
restructuring of the account, and will be binding on all lenders under the terms of the ICA.
However, if the JLF decides to proceed with recovery, the minimum criteria for binding
decision, if any, under any relevant laws/Acts would be applicable.


22.3 The JLF is required to arrive at an agreement on the option to be adopted for CAP
within 30 days from (i) the date of an account being reported as SMA-2 by one or more
lender, or (ii) receipt of request from the borrower to form a JLF, with substantiated grounds,
if it senses imminent stress. The JLF should sign off the detailed final CAP within the next 30
days from the date of arriving at such an agreement.

22.4 If the JLF decides on options 22.1 (a) or (b), but the account fails to perform as per the
agreed terms under option (a) or (b), the JLF should initiate recovery under option 22.1 (c).

23. Restructuring Process
23.1 Prudential guidelines on restructuring of advances as contained in Part B of this Master
Circular lay down detailed methodology and norms for restructuring of advances under sole
banking as well as multiple/ consortium arrangements. Corporate Debt Restructuring (CDR)

5
  One of the important elements of DCA would be a \'stand still\' agreement binding for the period from
the date of signing of DCA to the date of approval of restructuring package as per the time frame
indicated in paragraphs 22.3 and 22.4 of these Guidelines. Under this clause, both the debtor and
creditor(s) shall agree to a legally binding \'stand-still\' whereby both the parties commit themselves not
to take recourse to any other legal action during the \'stand-still\' period. This would be necessary to
undertake the necessary debt restructuring exercise without any outside intervention, judicial or
otherwise. However, the stand-still clause will be applicable only to any civil action either by the
borrower or any lender against the other party and will not cover any criminal action. Further, during
the stand-still period, outstanding foreign exchange forward contracts, derivative products, etc., can
be crystallised, provided the borrower is agreeable to such crystallisation. The borrower will
additionally undertake that during the stand-still period the documents will stand extended for the
purpose of limitation and also that it will not approach any other authority for any relief and the
directors of the borrowing company will not resign from the Board of Directors during the stand-still
period.


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                                                                          DBOD-MC On IRAC Norms - 2014
mechanism, as described in Annex 4 of this Master Circular, is an institutional framework for
restructuring of multiple/ consortium advances of banks where even creditors who are not
part of CDR system can join by signing transaction to transaction based agreements.
23.2 If the JLF decides restructuring of the account as CAP, it will have the option of either
referring the account to CDR Cell after a decision to restructure is taken under para 22.1 as
indicated above or restructure the same independent of the CDR mechanism.


23.3 Restructuring by JLF
23.3.1 If the JLF decides to restructure an account independent of the CDR mechanism, the
JLF should carry out the detailed Techno-Economic Viability (TEV) study, and if found
viable, finalise the restructuring package within 30 days from the date of signing off the final
CAP as mentioned in paragraph 22.3 above.


23.3.2 For accounts with AE of less than Rs.5000 million, the above-mentioned restructuring
package should be approved by the JLF and conveyed by the lenders to the borrower within
the next 15 days for implementation.


23.3.3 For accounts with AE of Rs.5000 million and above, the above-mentioned TEV study
and restructuring package will have to be subjected to an evaluation by an Independent
Evaluation Committee (IEC)6 of experts fulfilling certain eligibility conditions. The IEC will
look into the viability aspects after ensuring that the terms of restructuring are fair to the
lenders. The IEC will be required to give their recommendation in these cases to the JLF
within a period of 30 days. Thereafter, considering the views of IEC if the JLF decides to go
ahead with the restructuring, the restructuring package including all terms and conditions as
mutually agreed upon between the lenders and borrower, would have to be approved by all
the lenders and communicated to the borrower within next 15 days for implementation.


23.3.4 Asset Classification benefit as applicable under the extant guidelines will accrue to
such restructured accounts as if they were restructured under CDR mechanism. For this
purpose, the asset classification of the account as on the date of formation of JLF will be
taken into account.


23.3.5 The above-mentioned time limits are maximum permitted time periods and the JLF
should try to arrive at a restructuring package as soon as possible in cases of simple
restructuring.

6
 The constitution of the IEC and the funding needs for payment of fees for independent experts has
been decided by Indian Banks\' Association (IBA) in consultation with RBI. Banks have been advised
by IBA in this regard vide its circular No. C&I/CIR/2013-14/9307 dated April 29, 2014


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                                                                     DBOD-MC On IRAC Norms - 2014
23.3.6 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. While generally no
account classified as doubtful should be considered by the JLF for restructuring, in cases
where a small portion of debt is doubtful i.e. the account is standard/sub-standard in the
books of at least 90% of creditors (by value), the account may then be considered under JLF
for restructuring.


23.3.7 Wilful defaulters will normally not be eligible for restructuring. However, the JLF may
review the reasons for classification of the borrower as a wilful defaulter and satisfy itself that
the borrower is in a position to rectify the wilful default. The decision to restructure such
cases should however also have the approvals of the board/s of individual bank/s within the
JLF who have classified the borrower as wilful defaulter.


23.3.8 The viability of the account should be determined by the JLF based on acceptable
viability benchmarks determined by them. Illustratively, the parameters may include the Debt
Equity Ratio, Debt Service Coverage Ratio, Liquidity/Current Ratio and the amount of
provision required in lieu of the diminution in the fair value of the restructured advance, etc.
Further, the JLF may consider the benchmarks for the viability parameters adopted by the
CDR mechanism (as mentioned in Appendix to Part B of this Master Circular) and adopt the
same with suitable adjustments taking into account the fact that different sectors of the
economy have different performance indicators.


23.4 Restructuring Referred by the JLF to the CDR Cell
23.4.1 If the JLF decides to refer the account to CDR Cell after a decision to restructure is
taken under para 22.1, the following procedure may be followed.


23.4.2 As the preliminary viability of account has already been decided by the JLF, CDR Cell
should directly prepare the Techno-Economic Viability (TEV) study and restructuring plan in
consultation with JLF within 30 days from the date of reference to it by the JLF.


23.4.3 For accounts with AE of less than Rs.5000 million, the above-mentioned restructuring
package should be submitted to CDR Empowered Group (EG) for approval. Under extant
instructions, CDR EG can approve or suggest modifications but ensure that a final decision
is taken within a total period of 90 days, which can be extended up to a maximum of 180
days from the date of reference to CDR Cell. However, the cases referred to CDR Cell by
JLF will have to be finally decided by the CDR EG within the next 30 days. If approved by



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                                                                      DBOD-MC On IRAC Norms - 2014
CDR EG, the restructuring package should be approved by all lenders and conveyed to the
borrower within the next 30 days for implementation.


23.4.4 For accounts with AE of Rs.5000 million and above, the TEV study and restructuring
package prepared by CDR Cell will have to be subjected to an evaluation by an Independent
Evaluation Committee (IEC) of experts. As stated in paragraph 23.3.3, composition and
other details of the IEC has been communicated separately by IBA to banks. The IEC will
look into the viability aspects after ensuring that the terms of restructuring are fair to the
lenders. The IEC will be required to give their recommendation in these aspects to the CDR
Cell under advice to JLF within a period of 30 days. 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. Thereafter, CDR EG should decide on the
approval/modification/rejection within the next 30 days. If approved by CDR EG, the
restructuring package should be approved by all lenders and conveyed to the borrower
within the next 30 days for implementation.


24. Other Issues/Conditions Relating to Restructuring by JLF/CDR Cell
24.1 Both under JLF and CDR mechanism, the restructuring package should also stipulate
the timeline during which certain viability milestones (e.g. improvement in certain financial
ratios after a period of time, say, 6 months or 1 year and so on) would be achieved. The JLF
must periodically review the account for achievement/non-achievement of milestones and
should consider initiating suitable measures including recovery measures as deemed
appropriate.


24.2 Restructuring whether under JLF or CDR is to be completed within the specified time
periods. The JLF and CDR Cell should optimally utilise the specified time periods so that the
aggregate time limit is not breached under any mode of restructuring. If the JLF/CDR takes a
shorter time for an activity as against the prescribed limit, then it can have the discretion to
utilise the saved time for other activities provided the aggregate time limit is not breached.


24.3 The general principle of restructuring should be that the shareholders bear the first loss
rather than the debt holders. With this principle in view and also to ensure more `skin in the
game\' of promoters, JLF/CDR may consider the following options when a loan is
restructured:
   ·   Possibility of transferring equity of the company by promoters to the lenders to
       compensate for their sacrifices;
   ·   Promoters infusing more equity into their companies;


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                                                                    DBOD-MC On IRAC Norms - 2014
    ·   Transfer of the promoters\' holdings to a security trustee or an escrow arrangement till
        turnaround of company. This will enable a change in management control, should
        lenders favour it.


24.4 In case a borrower has undertaken diversification or expansion of the activities which
has resulted in the stress on the core-business of the group, a clause for sale of non-core
assets or other assets may be stipulated as a condition for restructuring the account, if under
the TEV study the account is likely to become viable on hiving-off of non-core activities and
other assets.

24.5    For restructuring of dues in respect of listed companies, lenders may be ab-initio
compensated for their loss/sacrifice (diminution in fair value of account in net present value
terms) by way of issuance of equities of the company upfront, subject to the extant
regulations and statutory requirements. In such cases, the restructuring agreement shall not
incorporate any right of recompense clause. However, if the lenders\' sacrifice is not fully
compensated by way of issuance of equities, the right of recompense clause may be
incorporated to the extent of shortfall. For unlisted companies, the JLF will have option of
either getting equities issued or incorporate suitable `right to recompense\' clause.

24.6 Paragraph 2.2 of our circular DBOD.No.Dir.BC.47/13.07.05/2006-07 dated December
15, 2006 on `Limits on Banks\' Exposure to Capital Markets\' stipulates certain limits on banks\'
exposure to Capital Markets. In partial modification of the circular ibid, it has been decided
that if acquisition of equity shares, as indicated in paragraph 24.5 above, results in
exceeding the extant regulatory Capital Market Exposure (CME) limit, the same will not be
considered as a breach of regulatory limit. However, this will require reporting to RBI and
disclosure by banks in the Notes to Accounts in Annual Financial Statements.


24.7 In order to distinguish the differential security interest available to secured lenders,
partially secured lenders and unsecured lenders, the JLF/CDR could consider various
options like:
    ·   Prior agreement in the ICA among the above classes of lenders regarding
        repayments, say, as per an agreed waterfall mechanism;
    ·   A structured agreement stipulating priority of secured creditors;
    ·   Appropriation of repayment proceeds among secured, partially secured and
        unsecured lenders in certain pre-agreed proportion.

The above is only an illustrative list and the JLF may decide on a mutually agreed option. 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. So, it


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                                                                    DBOD-MC On IRAC Norms - 2014
would be beneficial if lenders appreciate the concerns of fellow lenders and arrive at a
mutually agreed option with a view to preserving the economic value of assets. Once an
option is agreed upon, the bank having the largest exposure may take the lead in ensuring
distribution according to agreed terms once the restructuring package is implemented.


24.8   As regards prudential norms and operational details, RBI\'s guidelines on CDR
Mechanism, including OTS, will be applicable to the extent that they are not inconsistent with
these guidelines.


25. Prudential Norms on Asset Classification and Provisioning
25.1 While a restructuring proposal is under consideration by the JLF/CDR, the usual asset
classification norm would continue to apply. The process of re-classification of an asset
should not stop merely because restructuring proposal is under consideration by the
JLF/CDR.


25.2 However, as an incentive for quick implementation of a restructuring package, the
special asset classification benefit on restructuring of accounts as per extant instructions
would be available for accounts undertaken for restructuring under these guidelines, subject
to adherence to the overall timeframe for approval of restructuring package detailed in
paragraphs 23.3 and 23.4 above and implementation of the approved package within 90
days from the date of approval. The asset classification status as on the date of formation of
JLF would be the relevant date to decide the asset classification status of the account after
implementation of the final restructuring package. As mentioned in paragraph 15.2.3 in Part
­ B of this Master Circular, the special asset classification benefit as above will however be
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.


25.3 As a measure to ensure adherence to the proposals made in these guidelines as also
to impose disincentives on borrowers for not maintaining credit discipline, accelerated
provisioning norms (as detailed in paragraph 26 below) are being introduced.


26. Accelerated Provisioning
26.1 In cases where banks fail to report SMA status of the accounts to CRILC or resort to
methods with the intent to conceal the actual status of the accounts or evergreen the
account, banks will be subjected to accelerated provisioning for these accounts and/or other
supervisory actions as deemed appropriate by RBI. The current provisioning requirement




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                                                                   DBOD-MC On IRAC Norms - 2014
and the revised accelerated provisioning in respect of such non performing accounts are as
under:
        Asset            Period as NPA        Current provisioning            Revised
    Classification                                    (%)                   accelerated
                                                                          provisioning (%)
 Sub- standard            Up to 6 months     15                              No change
 (secured)              6 months to 1 year   15                                  25
 Sub-standard           Up to 6 months       25       (other      than
 (unsecured       ab-                        infrastructure loans)               25
 initio)                                     20 (infrastructure loans)
                        6 months to 1 year   25       (other      than
                                             infrastructure loans)               40
                                             20 (infrastructure loans)
 Doubtful I                  2nd year        25 (secured portion)        40 (secured portion)
                                             100 (unsecured portion)       100 (unsecured
                                                                               portion)
 Doubtful II               3rd & 4th year    40 (secured portion)        100 for both secured
                                             100 (unsecured portion)       and unsecured
                                                                               portions
 Doubtful III            5th year onwards    100                                  100


26.2 Further, any of the lenders who have agreed to the restructuring decision under the
CAP by JLF and is a signatory to the ICA and DCA, but changes their stance later on, or
delays/refuses to implement the package, will also be subjected to accelerated provisioning
requirement as indicated at para 26.1 above, on their exposure to this borrower i.e., if it is
classified as an NPA. If the account is standard in those lenders\' books, the provisioning
requirement would be 5%. Further, any such backtracking by a lender might attract negative
supervisory view during Supervisory Review and Evaluation Process.

26.3 Presently, asset classification is based on record of recovery at individual banks and
provisioning is based on asset classification status at the level of each bank. However, if
lenders fail to convene the JLF or fail to agree upon a common CAP within the stipulated
time frame, the account will be subjected to accelerated provisioning as indicated at para
26.1 above, if it is classified as an NPA. If the account is standard in those lenders\' books,
the provisioning requirement would be 5%.


26.4 If an escrow maintaining bank under JLF/CDR mechanism does not appropriate
proceeds of repayment by the borrower among the lenders as per agreed terms resulting
into down gradation of asset classification of the account in books of other lenders, the
account with the escrow maintaining bank will attract the asset classification which is lowest
among the lending member banks, and corresponding provisioning requirement.




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                                                                  DBOD-MC On IRAC Norms - 2014
27. Wilful Defaulters and Non-Cooperative Borrowers
27.1 Instructions regarding treatment of Wilful Defaulters are contained in our Master
Circular DBOD No. CID.BC. 3 /20.16.003/2013-14 dated July 1, 2013 on `Wilful Defaulters\'
updated from time to time. Banks are required to strictly adhere to these guidelines. In
addition to these instructions and with a view to ensuring better corporate governance
structure in companies and ensuring accountability of independent/professional directors,
promoters, auditors, etc. 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 26.1 above. This is a prudential measure since
the expected losses on exposures to such borrowers are likely to be higher. It is reiterated
that no additional facilities should be granted by any bank/FI to the listed wilful defaulters, in
terms of paragraph 2.5 (a) of Master Circular on Wilful Defaulters dated July 1, 2013.


(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 borrowers7, after giving them due notice if satisfactory
clarifications are not furnished. Banks will be required to report classification of such
borrowers to CRILC. Further, banks will be required to make higher/accelerated provisioning
in respect of new loans/exposures to such borrowers as also new loans/exposures to any
other company promoted by such promoters/ directors or to a company on whose board any
of the promoter / directors of this non-cooperative borrower is a director. The provisioning
applicable in such cases will be at the rate of 5% if it is a standard account and accelerated
provisioning as per para 26.1 above, if it is an NPA. This is a prudential measure since the
expected losses on exposures to such non-cooperative borrowers are likely to be higher.


28. Dissemination of Information




7
  A non-cooperative borrower is broadly one who does not provide necessary information required by a lender
to assess its financial health even after 2 reminders; or denies access to securities etc. as per terms of sanction
or does not comply with other terms of loan agreements within stipulated period; or is hostile / indifferent / in
denial mode to negotiate with the bank on repayment issues; or plays for time by giving false impression that
some solution is on horizon; or resorts to vexatious tactics such as litigation to thwart timely resolution of the
interest of the lender/s. The borrowers will be given 30 days\' notice to clarify their stand before their names are
reported as non-cooperative borrowers.




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                                                                                 DBOD-MC On IRAC Norms - 2014
28.1 At present, the list of Suit filed accounts of Wilful Defaulters (Rs.2.5 million and above)
is submitted by banks to the Credit Information Companies (CICs) of which they are
member(s), who display the same on their respective websites as and when received. The
list of non-suit filed accounts of Wilful Defaulters (Rs.2.5 million and above) is confidential
and is disseminated by RBI among banks and FIs only for their own use. In order to make
the current system of banks/FIs reporting names of suit filed accounts and non-suit filed
accounts of Wilful Defaulters and its availability to the banks by CICs/RBI as current as
possible, banks are advised to forward data on wilful defaulters to the CICs/Reserve Bank at
the earliest but not later than a month from the reporting date and they must use/ furnish the
detailed   information   as    per    the     format     prescribed    in   our    Master     Circular
DBOD.No.CID.BC.3/20.16.003/2013-14 dated July 1, 2013 on `Wilful Defaulters\'.

28.2 In terms of our Master Circular on Wilful Defaulters mentioned above, in case any
falsification of accounts on the part of the borrowers is observed by the banks / FIs, and if it
is observed that the auditors were negligent or deficient in conducting the audit, banks
should lodge a formal complaint against the auditors of the borrowers with the Institute of
Chartered Accountants of India (ICAI) to enable the ICAI to examine and fix accountability of
the auditors. RBI reiterates these instructions for strict compliance. Pending disciplinary
action by ICAI, the complaints may also be forwarded to the RBI (Department of Banking
Supervision, Central Office) and IBA for records. IBA would circulate the names of the CA
firms against whom many complaints have been received amongst all banks who should
consider this aspect before assigning any work to them. RBI would also share such
information   with   other    financial     sector    regulators/Ministry   of    Corporate    Affairs
(MCA)/Comptroller and Auditor General (CAG).

28.3 Further, banks may seek explanation from advocates who wrongly certify as to clear
legal titles in respect of assets or valuers who overstate the security value, by negligence or
connivance, and if no reply/satisfactory clarification is received from them within one month,
they may report their names to IBA. The IBA may circulate the names of such
advocates/valuers among its members for consideration before availing of their services in
future. The IBA would create a central registry for this purpose.


29. These guidelines have become effective from April 1, 2014.







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                                                                        DBOD-MC On IRAC Norms - 2014
                                                                         Appendix to Part C-1

                                   SMA-0 Signs of Stress


Illustrative list of signs of stress for categorising an account as SMA-0:


1. Delay of 90 days or more in (a) submission of stock statement / other stipulated operating
control statements or (b) credit monitoring or financial statements or (c) non-renewal of
facilities based on audited financials.


2. Actual sales / operating profits falling short of projections accepted for loan sanction by
40% or more; or a single event of non-cooperation / prevention from conduct of stock audits
by banks; or reduction of Drawing Power (DP) by 20% or more after a stock audit; or
evidence of diversion of funds for unapproved purpose; or drop in internal risk rating by 2 or
more notches in a single review.

3. Return of 3 or more cheques (or electronic debit instructions) issued by borrowers in 30
days on grounds of non-availability of balance/DP in the account or return of 3 or more bills /
cheques discounted or sent under collection by the borrower.


4. Devolvement of Deferred Payment Guarantee (DPG) instalments or Letters of Credit
(LCs) or invocation of Bank Guarantees (BGs) and its non-payment within 30 days.

5. Third request for extension of time either for creation or perfection of securities as against
time specified in original sanction terms or for compliance with any other terms and
conditions of sanction.


6. Increase in frequency of overdrafts in current accounts.

7. The borrower reporting stress in the business and financials.


8. Promoter(s) pledging/selling their shares in the borrower company due to financial stress.




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                                                                    DBOD-MC On IRAC Norms - 2014
C-2:    Framework      for   Revitalising    Distressed     Assets     in   the    Economy      -
Refinancing of Project Loans, Sale of NPA and Other Regulatory Measures
30. Paragraphs 3, 4 and 5 of the our circular DBOD.BP.BC.No.98/21.04.132/2013-14 dated
February 26, 2014 on `Framework for Revitalising Distressed Assets in the Economy -
Refinancing of Project Loans, Sale of NPA and Other Regulatory Measures\' contain
instructions on sale of financial assets by banks and use of countercyclical/floating
provisions. These instructions have been consolidated in paragraphs 6 and 7 under Part A of
this Master Circular. Detailed guidelines on the subject of `Refinancing of Project Loans\', and
other regulatory measures are as under:

31. Refinancing of Project Loans


31.1 As per the definition of a restructured account as given under `Key Concepts\' in Annex
5 of this Master Circular, a restructured account is one where the bank, for economic or legal
reasons relating to the borrower\'s financial difficulty, grants to the borrower concessions that
the bank would not otherwise consider. Restructuring would normally involve modification of
terms of the advances/securities, which would generally include, among others, alteration of
repayment period/repayable amount/ the amount of instalments/rate of interest (due to
reasons other than competitive reasons). Thus, any change in repayment schedule of a loan
will render it as restructured account.

31.2 Further, in terms of DBOD.No.BP.BC.144/21.04.048-2000 dated February 29, 2000 on
`Income Recognition, Asset Classification, Provisioning and other related matters and
Capital Adequacy Standards - Takeout Finance\', banks can refinance their existing
infrastructure project loans by entering into take-out financing agreements with any financial
institution on a pre-determined basis. If there is no pre-determined agreement, a standard
account in the books of a bank can still be taken over by other banks/FIs, subject to our
guidelines on `Transfer of Borrowal Accounts from one Bank to Another\' issued vide circular
DBOD.No.BP.BC-104/21.04.048/2011-12 dated May 10, 2012.

31.3 In partial modification to the above-mentioned circulars, banks are advised that if they
refinance any existing infrastructure and other project loans by way of take-out financing,
even without a pre-determined agreement with other banks / FIs, and fix a longer repayment
period, the same would not be considered as restructuring if the following conditions are
satisfied:
    ·   Such loans should be `standard\' in the books of the existing banks, and should have
        not been restructured in the past.
    ·   Such loans should be substantially taken over (more than 50% of the outstanding
        loan by value) from the existing financing banks/Financial institutions.


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                                                                     DBOD-MC On IRAC Norms - 2014
   ·   The repayment period should be fixed by taking into account the life cycle of the
       project and cash flows from the project.

32. Bank Loans for Financing Promoters\' Contribution
32.1 In terms of extant instructions on Bank Loans for Financing Promoters Contribution as
consolidated in our Master Circular DBOD.No.Dir.BC.14/13.03.00/2013-14 dated July 1,
2013 on `Loans and Advances ­ Statutory and Other Restrictions\', the promoters\'
contribution towards the equity capital of a company should come from their own resources
and banks should not normally grant advances to take up shares of other companies.

32.2 It has been decided that banks can extend finance to `specialized\' entities established
for acquisition of troubled companies subject to the general guidelines applicable to
advances against shares/debentures/bonds as contained in the above-mentioned Master
Circular and other regulatory and statutory exposure limits. The lenders should, however,
assess the risks associated with such financing and ensure that these entities are
adequately capitalized, and debt equity ratio for such entity is not more than 3:1.



32.3 In this connection, a `specialized\' entity will be a body corporate exclusively set up for
the purpose of taking over and turning around troubled companies and promoted by
individuals or/and institutional promoters (including Government) having professional
expertise in turning around `troubled companies\' and eligible to make investments in the
industry/segment to which the target asset belonged.


33. Credit Risk Management


33.1 Banks are advised that they should strictly follow the credit risk management guidelines
contained in our circular DBOD.No.BP.(SC).BC.98/21.04.103/99 dated October 7, 1999 on
`Risk Management Systems in Banks\' and DBOD.No.BP.520/21.04.103/2002-03 dated
October 12, 2002 on `Guidance Notes on Management of Credit Risk and Market Risk\'.


33.2 It is reiterated that lenders should carry out their independent and objective credit
appraisal in all cases and must not depend on credit appraisal reports prepared by outside
consultants, especially the in-house consultants of the borrowing entity.

33.3 Banks/lenders should carry out sensitivity tests/scenario analysis, especially for
infrastructure projects, which should inter alia include project delays and cost overruns. This
will aid in taking a view on viability of the project at the time of deciding Corrective Action
Plan (CAP) as mentioned in paragraph 22 of this Master Circular .



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                                                                    DBOD-MC On IRAC Norms - 2014
33.4 Lenders should ascertain the source and quality of equity capital brought in by the
promoters /shareholders. Multiple leveraging, especially, in infrastructure projects, is a
matter of concern as it effectively camouflages the financial ratios such as Debt/Equity ratio,
leading to adverse selection of the borrowers. 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.


33.5 Ministry of Corporate Affairs had introduced the concept of a Director Identification
Number (DIN) with the insertion of Sections 266A to 266G of Companies (Amendment) Act,
2006. Further, in terms of paragraph 5.4 of our Master Circular on Wilful Defaulters dated
July 1, 2013, in order to ensure that directors are correctly identified and in no case, persons
whose names appear to be similar to the names of directors appearing in the list of wilful
defaulters, are wrongfully denied credit facilities on such grounds, banks/FIs have been
advised to include the Director Identification Number (DIN) as one of the fields in the data
submitted by them to Reserve Bank of India/Credit Information Companies.


33.6 It is reiterated that while carrying out the credit appraisal, banks should verify as to
whether the names of any of the directors of the companies appear in the list of defaulters/
wilful defaulters by way of reference to DIN/PAN etc. Further, in case of any doubt arising on
account of identical names, banks should use independent sources for confirmation of the
identity of directors rather than seeking declaration from the borrowing company.


33.7 Paragraph 2.7 of our Master Circular on Wilful Defaulters states that, \"with a view to
monitoring the end-use of funds, if the lenders desire a specific certification from the
borrowers\' auditors regarding diversion / siphoning of funds by the borrower, the lender
should award a separate mandate to the auditors for the purpose. To facilitate such
certification by the auditors the banks and FIs will also need to ensure that appropriate
covenants in the loan agreements are incorporated to enable award of such a mandate by
the lenders to the borrowers / auditors\".


33.8 In addition to the above, banks are advised that with a view to ensuring proper end-use
of funds and preventing diversion/siphoning of funds by the borrowers, lenders could
consider engaging their own auditors for such specific certification purpose without relying
on certification given by borrower\'s auditors. However, this cannot substitute bank\'s basic
minimum own diligence in the matter.




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                                                                   DBOD-MC On IRAC Norms - 2014
34. Reinforcement of Regulatory Instructions
34.1 In terms of circular DBOD.No.CAS(COD)BC.142/WGCC-80 December 8, 1980 on
`Report of the Working Group to Review the System of Cash Credit ­ Implementation\', banks
were advised that before opening current accounts/sanctioning post sale limits, they should
obtain the concurrence of the main bankers and/or the banks which have sanctioned
inventory limits. Such accounts already opened may also be reviewed in the light of these
instructions and appropriate action should be taken. Further, in terms of Master Circular
DBOD.No.Dir.BC.12/13.03.00/2013-14 dated July 1, 2013 on `Guarantees and Co-
Acceptances\', banks should refrain from issuing guarantees on behalf of customers who do
not enjoy credit facilities with them.


34.2 RBI reiterates the above instructions regarding restrictions placed on banks on
extending credit facilities including non-fund based limits, opening of current accounts, etc.
to constituents who are not their regular borrowers. Banks must take necessary corrective
action in case the above instructions have not been strictly followed. Further, RBI will ensure
strict adherence by banks to these instructions. As non-compliance of RBI regulations in this
regard is likely to vitiate credit discipline, RBI will consider penalising non-compliant banks.


34.3 Banks are custodians of public deposits and are therefore expected to make all efforts
to protect the value of their assets. Banks are required to extinguish all available means of
recovery before writing off any account fully or partly. It is observed that some banks are
resorting to technical write off of accounts, which reduces incentives to recover. Banks
resorting to partial and technical write-offs should not show the remaining part of the loan as
standard asset. With a view to bring in more transparency, henceforth banks should disclose
full details of write offs, including separate details about technical write offs, in their annual
financial statements as per the format prescribed in the Appendix to this part of the Master
Circular.

35. Registration of Transactions with CERSAI


Currently security registration, especially registration of mortgages, is done at district level
and Central Registry of Securitisation Asset Reconstruction and Security Interest of India
(CERSAI) is generally used to register equitable mortgages. The Government mandate to
register all types of mortgages with CERSAI will have to be strictly followed by banks. In this
connection, instructions contained in our circular DBOD.Leg.No.BC.86/09.08.011/2010-11
dated April 21, 2011 on `Setting up of Central Electronic Registry under the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002\' is
reiterated, i.e. transactions relating to securitization and reconstruction of financial assets


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                                                                     DBOD-MC On IRAC Norms - 2014
and those relating to mortgage by deposit of title deeds to secure any loan or advances
granted by banks and financial institutions, as defined under the SARFAESI Act, are to be
registered in the Central Registry.

36. Board Oversight


36.1 The Board of Directors of banks should take all necessary steps to arrest the
deteriorating asset quality in their books and should focus on improving the credit risk
management system. Early recognition of problems in asset quality and resolution
envisaged in these guidelines requires the lenders to be proactive and make use of CRILC
as soon as it becomes functional.


36.2 Boards of banks should put in place a policy for timely submission of credit information
to CRILC and accessing information therefrom, prompt formation of Joint Lenders\' Forums
(JLFs), monitoring the progress of JLFs and adoption of Corrective Action Plans (CAPs), etc.
There should be a periodical review, say on a half yearly basis, of the above policy.

36.3 The boards of banks should put in place a system for proper and timely classification of
borrowers as wilful defaulters or/and non-cooperative borrowers. Further, Boards of banks
should periodically review the accounts classified as such, say on a half yearly basis.




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                                                                   DBOD-MC On IRAC Norms - 2014
                                                                                 Appendix Part C-2
                        Disclosure of Write-Offs & Technical Write-Offs
 Instructions contained in our circular DBOD.BP.BC.No. 79/21.04.018/2009-10 dated March
 15, 2010 on `Additional Disclosures by banks in Notes to Accounts\' specifically require banks
 to disclose the amounts written off during the year while giving details of movement in non-
 performing assets (NPAs). The format specified in the said circular stands modified as
 under.

                                                                             (Amount in Rs. crore)
                            Particulars                               Current year Previous year
              8
Gross NPAs as on 1st April of particular year (Opening
Balance)
Additions (Fresh NPAs) during the year
Sub-total (A)
Less:-
(i) Upgradations
(ii) Recoveries (excluding recoveries made from upgraded
accounts)
(iii) Technical/ Prudential9 Write-offs
(iv) Write-offs other than those under (iii) above
Sub-total (B)
Gross NPAs as on 31st March of following year (closing
balance) (A-B)


  Further banks should disclose the stock of technical write-offs and the recoveries made
 thereon as per the format below:
                                                                             (Amount in Rs. crore)
                          Particulars                                 Current year Previous year
Opening balance of Technical/ Prudential written-off accounts
as at April 1
Add: Technical/ Prudential write-offs during the year
Sub-total (A)
Less: Recoveries made from previously technical/ prudential
written-off accounts during the year (B)
Closing balance as at March 31 (A-B)




 8
   *Gross NPAs as per item 2 of Annex to DBOD Circular DBOD.BP.BC.No. 46/21.04.048/2009-10
 dated September 24, 2009 which specified a uniform method to compute Gross Advances, Net
 Advances, Gross NPAs and Net NPAs.
 9
   Technical or prudential write-off is the amount of non-performing loans which are outstanding in the
 books of the branches, but have been written-off (fully or partially) at Head Office level. Amount of
 Technical write-off should be certified by statutory auditors. (Defined in our circular reference
 DBOD.No.BP.BC. 64 /21.04.048/2009-10 dated December 1, 2009 on Provisioning Coverage for
 Advances)


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                                                                         DBOD-MC On IRAC Norms - 2014
                                                                                  Annex ­ 1
                                                                               (Cf. para 3.5)
                                         Part A
    Details of Gross Advances, Gross NPAs, Net Advances and Net NPAs


                                                     (Rs. in Crore up to two decimals)
                         Particulars                                  Amount
1. Standard Advances
2. Gross NPAs *
3. Gross Advances ** ( 1+2 )
4. Gross NPAs as a percentage of Gross Advances
   (2/3) (in %)
5. Deductions
   (i)   Provisions held in the case of NPA Accounts as
         per asset classification (including additional
         Provisions for NPAs at higher than prescribed
         rates).
   (ii) DICGC / ECGC claims received and held
        pending adjustment
   (iii) Part payment received and kept in Suspense
         Account or any other similar account
   (iv) Balance in Sundries Account (Interest
        Capitalization - Restructured Accounts), in
        respect of NPA Accounts
   (v) Floating Provisions***
   (vi) Provisions in lieu of diminution in the fair value of
        restructured accounts classified as NPAs
   (vii) Provisions in lieu of diminution in the fair value of
         restructured accounts classified as standard
         assets
6. Net Advances(3-5)
7. Net NPAs {2-5(i + ii + iii + iv + v + vi)}
8. Net NPAs as percentage of Net Advances (7/6) (in %)
* Principal dues of NPAs plus Funded Interest Term Loan (FITL) where the
  corresponding contra credit is parked in Sundries Account (Interest
  Capitalization - Restructured Accounts), in respect of NPA Accounts.
** 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).
*** Floating Provisions would be deducted while calculating Net NPAs, to the
    extent, banks have exercised this option, over utilising it towards Tier II capital.




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                                                                 DBOD-MC On IRAC Norms - 2014
                                     Part B
                            Supplementary Details


                                                (Rs. in Crore up to two decimals)
                           Particulars                               Amount
1. Provisions on Standard Assets excluding 5(vi) in Part A above
2. Interest recorded as Memorandum Item
3. Amount of cumulative Technical Write - Off in respect of NPA
   accounts reported in Part A above




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                                                           DBOD-MC On IRAC Norms - 2014
                                                                                       Annex - 2
                                                                                (Cf. para 4.2.13)
Relevant extract of the list of direct agricultural advances, from the Circular Priority
Sector Lending ­ Targets and Classification - paragraph III (1.1) of RPCD.CO.Plan.
BC.9/04.09.01/2013-14 dated July 1, 2013

Direct Agriculture
A. Loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups
(JLGs), i.e. groups of individual farmers, provided banks maintain disaggregated data on
such loans] engaged in Agriculture only.

(i) Short-term loans to farmers for raising crops, i.e. for crop loans. This will include
traditional / non-traditional plantations and horticulture.

(ii) Medium & long-term loans to farmers for agriculture (e.g. purchase of agricultural
implements and machinery, loans for irrigation and other developmental activities
undertaken in the farm).

(iii) Loans to farmers for pre-harvest and post-harvest activities, viz., spraying, weeding,
harvesting, sorting, grading and transporting of their own farm produce.

(iv) Loans to farmers up to `50 lakh against pledge / hypothecation of agricultural produce
(including warehouse receipts) for a period not exceeding 12 months, irrespective of whether
the farmers were given crop loans for raising the produce or not. (as amended by
RPCD.CO.Plan.BC.72/04.09.01/2012-13 dt 03-05-13)

(v) Loans to small and marginal farmers for purchase of land for agricultural purposes.

(vi) Loans to distressed farmers indebted to non-institutional lenders.

(vii) Bank loans to Primary Agricultural Credit Societies (PACS), Farmers\' Service Societies
(FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS) ceded to or managed /
controlled by such banks for on lending to farmers for agricultural activities.

(viii) Loans to farmers under Kisan Credit Card Scheme.

(ix) Export credit to farmers for exporting their own farm produce.

B. Loans to corporates including farmers\' producer companies of individual farmers,
partnership firms and co-operatives of farmers directly engaged in Agriculture Activities, up
to an aggregate limit of `2 crore per borrower for the following purposes.

(i)Short-term loans for raising crops, i.e. for crop loans. This will include traditional / non-
traditional plantations and horticulture.

(ii) Medium & long-term loans for agriculture (e.g. purchase of agricultural implements and
machinery, loans for irrigation and other developmental activities undertaken in the farm).

(iii) Loans for pre-harvest and post-harvest activities, viz., spraying, weeding, harvesting,
grading and sorting.

(iv) Export credit for exporting their own farm produce.




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                                                                      DBOD-MC On IRAC Norms - 2014
                                                                       Annex ­ 3
                 Format for Computing Countercyclical Provisioning Buffer
                                                                    Amount in Rs. in Crore
        Computing Countercyclical Provisioning Buffer as on September 30, 2010
1              2                 3         4            5             6         7        8
                               Gross
                                                  Provisions for
                              NPA @
                                                  diminution in
                                Plus     Specific
                                                   fair value of
                               Tech Provisions                                    Ratio
                                                        the      Technical Total
                               nical /  for NPAs                                  of (7)
                                                   restructured write-off (4+5+6)
                               Prud       held /                                  to (3)
                                                     accounts
                               ential   required
                                                   calssified as
                              Write-off
                                                       NPAs
                                  *
1. Sub-Standard Advances
2. Doubtful Advances
   (a+b+c)
    a < 1 year
    b 1-3 Years
    c >3 years
3. Advances classified as
   Loss Assets
4. Total
5. Floating Provisions for
   Advances (only to the
   extent they are not used
   as Tier II Capital)
6. DICGC / ECGC claims
   received and held
   pending
   adjustment
7. Part payment received
   and kept in Suspense
   Account or any other
   similar account
8. Total
   (Sum of column 7 of
   Row 4+ Row 5 + Row
   6+ Row 7)
9. Provision Coverage
   Ratio
   {(Row 8/Total of Column
   3 of Row 4)*100}
10. If PCR < 70%, shortfall
    in provisioning to
    achieve PCR of 70%
    (70% of Column 3 of
    Row 4 - Row 8)
11. a Countercyclical


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                                                               DBOD-MC On IRAC Norms - 2014
  Provisioning
  Buffer, if bank has
  achieved PCR of
  70% - Floating
  Provisions for
  advances to the
  extent not used as
  Tier II capital (Row
  5)
b Countercyclical
  Provisioning
  Buffer, if bank has
  not achieved PCR
  of 70% - Floating
  Provisions for
  advances to the
  extent not used as
  Tier II capital (Row
  5) + Shortfall in
  provisioning to
  achieve PCR of
  70%, if any (Row 10)
  which needs to be
  built up at the
  earliest.




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                              DBOD-MC On IRAC Norms - 2014
                                                                                     Annex - 4

           Organisational Framework for Restructuring of Advances Under
             Consortium / Multiple Banking / Syndication Arrangements

A.   Corporate Debt Restructuring (CDR) Mechanism

     1.1   Objective

           The objective of the Corporate Debt Restructuring (CDR) framework is to
           ensure timely and transparent mechanism for restructuring the corporate debts
           of viable entities facing problems, outside the purview of BIFR, DRT and other
           legal proceedings, for the benefit of all concerned. In particular, the framework
           will aim at preserving viable corporates that are affected by certain internal and
           external factors and minimize the losses to the creditors and other
           stakeholders through an orderly and coordinated restructuring programme.

     1.2   Scope

           The CDR Mechanism has been designed to facilitate restructuring of advances
           of borrowers enjoying credit facilities from more than one bank / Financial
           Institution (FI) in a coordinated manner. The CDR Mechanism is an
           organizational framework institutionalized for speedy disposal of restructuring
           proposals of large borrowers availing finance from more than one banks / FIs.
           This mechanism will be available to all borrowers engaged in any type of
           activity subject to the following conditions :

           a)       The borrowers enjoy credit facilities from more than one bank / FI under
                    multiple banking / syndication / consortium system of lending.

           b)       The total outstanding (fund-based and non-fund based) exposure is
                    Rs.10 crore or above.

           CDR system in the country will have a three tier structure :

                ·   CDR Standing Forum and its Core Group
                ·   CDR Empowered Group
                ·   CDR Cell


2.   CDR Standing Forum

     2.1   The CDR Standing Forum would be the representative general body of all



                                              85
                                                                  DBOD-MC On IRAC Norms - 2014
      financial institutions and banks participating in CDR system. All financial
      institutions and banks should participate in the system in their own interest.
      CDR Standing Forum will be a selfempowered body, which will lay down
      policies and guidelines, and monitor the progress of corporate debt
      restructuring.

2.2   The Forum will also provide an official platform for both the creditors and
      borrowers (by consultation) to amicably and collectively evolve policies and
      guidelines for working out debt restructuring plans in the interests of all
      concerned.

2.3   The CDR Standing Forum shall comprise of Chairman & Managing Director,
      Industrial Development Bank of India Ltd; Chairman, State Bank of India;
      Managing Director & CEO, ICICI Bank Limited; Chairman, Indian Banks\'
      Association as well as Chairmen and Managing Directors of all banks and
      financial institutions participating as permanent members in the system. Since
      institutions like Unit Trust of India, General Insurance Corporation, Life
      Insurance Corporation may have assumed exposures on certain borrowers,
      these institutions may participate in the CDR system. The Forum will elect its
      Chairman for a period of one year and the principle of rotation will be followed
      in the subsequent years. However, the Forum may decide to have a Working
      Chairman as a whole-time officer to guide and carry out the decisions of the
      CDR Standing Forum. The RBI would not be a member of the CDR Standing
      Forum and Core Group. Its role will be confined to providing broad guidelines.

2.4   The CDR Standing Forum shall meet at least once every six months and would
      review and monitor the progress of corporate debt restructuring system. The
      Forum would also lay down the policies and guidelines including those relating
      to the critical parameters for restructuring (for example, maximum period for a
      unit to become viable under a restructuring package, minimum level of
      promoters\' sacrifice etc.) to be followed by the CDR Empowered Group and
      CDR Cell for debt restructuring and would ensure their smooth functioning and
      adherence to the prescribed time schedules for debt restructuring. It can also
      review any individual decisions of the CDR Empowered Group and CDR Cell.
      The CDR Standing Forum may also formulate guidelines for dispensing special
      treatment to those cases, which are complicated and are likely to be delayed
      beyond the time frame prescribed for processing.

2.5   A CDR Core Group will be carved out of the CDR Standing Forum to assist the




                                      86
                                                           DBOD-MC On IRAC Norms - 2014
           Standing Forum in convening the meetings and taking decisions relating to
           policy, on behalf of the Standing Forum. The Core Group will consist of Chief
           Executives of Industrial Development Bank of India Ltd., State Bank of India,
           ICICI Bank Ltd, Bank of Baroda, Bank of India, Punjab National Bank, Indian
           Banks\' Association and Deputy Chairman of Indian Banks\' Association
           representing foreign banks in India.

     2.6   The CDR Core Group would lay down the policies and guidelines to be
           followed by the CDR Empowered Group and CDR Cell for debt restructuring.
           These guidelines shall also suitably address the operational difficulties
           experienced in the functioning of the CDR Empowered Group. The CDR Core
           Group shall also prescribe the PERT chart for processing of cases referred to
           the CDR system and decide on the modalities for enforcement of the time
           frame. The CDR Core Group shall also lay down guidelines to ensure that
           over-optimistic projections are not assumed while preparing / approving
           restructuring proposals especially with regard to capacity utilization, price of
           products, profit margin, demand, availability of raw materials, input-output ratio
           and likely impact of imports / international cost competitiveness.

3.   CDR Empowered Group

     3.1   The individual cases of corporate debt restructuring shall be decided by the
           CDR Empowered Group, consisting of ED level representatives of Industrial
           Development Bank of India Ltd., ICICI Bank Ltd. and State Bank of India as
           standing members, in addition to ED level representatives of financial
           institutions and banks who have an exposure to the concerned company.
           While the standing members will facilitate the conduct of the Group\'s meetings,
           voting will be in proportion to the exposure of the creditors only. In order to
           make the CDR Empowered Group effective and broad based and operate
           efficiently and smoothly, it would have to be ensured that participating
           institutions / banks approve a panel of senior officers to represent them in the
           CDR Empowered Group and ensure that they depute officials only from among
           the panel to attend the meetings of CDR Empowered Group. Further,
           nominees who attend the meeting pertaining to one account should invariably
           attend all the meetings pertaining to that account instead of deputing their
           representatives.

     3.2   The level of representation of banks / financial institutions on the CDR
           Empowered Group should be at a sufficiently senior level to ensure that




                                            87
                                                                 DBOD-MC On IRAC Norms - 2014
      concerned bank / FI abides by the necessary commitments including
      sacrifices, made towards debt restructuring. There should be a general
      authorisation by the respective Boards of the participating institutions / banks
      in favour of their representatives on the CDR Empowered Group, authorising
      them to take decisions on behalf of their organization, regarding restructuring
      of debts of individual corporates.

3.3   The CDR Empowered Group will consider the preliminary report of all cases of
      requests of restructuring, submitted to it by the CDR Cell. After the Empowered
      Group decides that restructuring of the company is prima-facie feasible and the
      enterprise is potentially viable in terms of the policies and guidelines evolved
      by Standing Forum, the detailed restructuring package will be worked out by
      the CDR Cell in conjunction with the Lead Institution. 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.

3.4   The CDR Empowered Group would be mandated to look into each case of
      debt restructuring, examine the viability and rehabilitation potential of the
      Company and approve the restructuring package within a specified time frame
      of 90 days, or at best within 180 days of reference to the Empowered Group.
      The CDR Empowered Group shall decide on the acceptable viability
      benchmark levels on the following illustrative parameters, which may be
      applied on a case-by-case basis, based on the merits of each case :

      *     Return on Capital Employed (ROCE),

      *     Debt Service Coverage Ratio (DSCR),

            Gap between the Internal Rate of Return (IRR) and the Cost of Fund
      *
            (CoF),

      *     Extent of sacrifice.

3.5   The Board of each bank / FI should authorise its Chief Executive Officer (CEO)
      and / or Executive Director (ED) to decide on the restructuring package in
      respect of cases referred to the CDR system, with the requisite requirements
      to meet the control needs. CDR Empowered Group will meet on two or three
      occasions in respect of each borrowal account. This will provide an opportunity



                                       88
                                                            DBOD-MC On IRAC Norms - 2014
           to the participating members to seek proper authorisations from their CEO /
           ED, in case of need, in respect of those cases where the critical parameters of
           restructuring are beyond the authority delegated to him / her.



     3.6   The decisions of the CDR Empowered Group shall be final. If restructuring of
           debt is found to be viable and feasible and approved by the Empowered
           Group, the company would be put on the restructuring mode. If restructuring is
           not found viable, the creditors would then be free to take necessary steps for
           immediate recovery of dues and / or liquidation or winding up of the company,
           collectively or individually.

4.   CDR Cell

     4.1   The CDR Standing Forum and the CDR Empowered Group will be assisted by
           a CDR Cell in all their functions. The CDR Cell will make the initial scrutiny of
           the proposals received from borrowers / creditors, by calling for proposed
           rehabilitation plan and other information and put up the matter before the CDR
           Empowered Group, within one month to decide whether rehabilitation is prima
           facie feasible. If found feasible, the CDR Cell will proceed to prepare detailed
           Rehabilitation Plan with the help of creditors and, if necessary, experts to be
           engaged from outside. If not found prima facie feasible, the creditors may start
           action for recovery of their dues.

     4.2   All references for corporate debt restructuring by creditors or borrowers will be
           made to the CDR Cell. It shall be the responsibility of the lead institution /
           major stakeholder to the corporate, to work out a preliminary restructuring plan
           in consultation with other stakeholders and submit to the CDR Cell within one
           month. The CDR Cell will prepare the restructuring plan in terms of the general
           policies and guidelines approved by the CDR Standing Forum and place for
           consideration of the Empowered Group within 30 days for decision. The
           Empowered Group can approve or suggest modifications but ensure that a
           final decision is taken within a total period of 90 days. However, for sufficient
           reasons the period can be extended up to a maximum of 180 days from the
           date of reference to the CDR Cell.

     4.3   The CDR Standing Forum, the CDR Empowered Group and CDR Cell is at
           present housed in Industrial Development Bank of India Ltd. However, it may
           be shifted to another place if considered necessary, as may be decided by the
           Standing Forum. The administrative and other costs shall be shared by all



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                                                                 DBOD-MC On IRAC Norms - 2014
           financial institutions and banks. The sharing pattern shall be as determined by
           the Standing Forum.

     4.4   CDR Cell will have adequate members of staff deputed from banks and
           financial institutions. The CDR Cell may also take outside professional help.
           The cost in operating the CDR mechanism including CDR Cell will be met from
           contribution of the financial institutions and banks in the Core Group at the rate
           of Rs.50 lakh each and contribution from other institutions and banks at the
           rate of Rs.5 lakh each.

5.   Other features

     5.1   Eligibility criteria

           5.1.1 The scheme will not apply to accounts involving only one financial
                  institution or one bank. The CDR mechanism will cover only multiple
                  banking accounts / syndication / consortium accounts of corporate
                  borrowers engaged in any type of activity with outstanding fund-based
                  and non-fund based exposure of Rs.10 crore and above by banks and
                  institutions.

           5.1.2 The Category 1 CDR system will be applicable only to accounts
                  classified as \'standard\' and \'sub-standard\'. There may be a situation
                  where a small portion of debt by a bank might be classified as doubtful.
                  In that situation, if the account has been classified as \'standard\'/
                  \'substandard\' in the books of at least 90% of creditors (by value), the
                  same would be treated as standard / substandard, only for the purpose
                  of judging the account as eligible for CDR, in the books of the remaining
                  10% of creditors. 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. However, potentially viable cases
                  of NPAs will get priority. This approach would provide the necessary
                  flexibility and facilitate timely intervention for debt restructuring.
                  Prescribing any milestone(s) may not be necessary, since the debt
                  restructuring exercise is being triggered by banks and financial
                  institutions or with their consent.

           5.1.3 While corporates indulging in frauds and malfeasance even in a single
                  bank will continue to remain ineligible for restructuring under CDR
                  mechanism as hitherto, the Core group may review the reasons for




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                                                                 DBOD-MC On IRAC Norms - 2014
            classification of the borrower as wilful defaulter specially in old cases
            where the manner of classification of a borrower as a wilful defaulter
            was not transparent and satisfy itself that the borrower is in a position to
            rectify the wilful default provided he is granted an opportunity under the
            CDR mechanism. Such exceptional cases may be admitted for
            restructuring with the approval of the Core Group only. The Core Group
            may ensure that cases involving frauds or diversion of funds with
            malafide intent are not covered.

      5.1.4 The accounts where recovery suits have been filed by the creditors
            against the company, may be eligible for consideration under the CDR
            system provided, the initiative to resolve the case under the CDR
            system is taken by at least 75% of the creditors (by value) and 60% of
            creditors (by number).

      5.1.5 BIFR cases are not eligible for restructuring under the CDR system.
            However, large value BIFR cases may be eligible for restructuring under
            the CDR system if specifically recommended by the CDR Core Group.
            The Core Group shall recommend exceptional BIFR cases on a case-to-
            case basis for consideration under the CDR system. It should be
            ensured that the lending institutions complete all the formalities in
            seeking the approval from BIFR before implementing the package.

5.2   Reference to CDR system

      5.2.1 Reference to Corporate Debt Restructuring System could be triggered
            by (i) any or more of the creditor who have minimum 20% share in either
            working capital or term finance, or (ii) by the concerned corporate, if
            supported by a bank or financial institution having stake as in (i) above.

      5.2.2 Though flexibility is available whereby the creditors could either consider
            restructuring outside the purview of the CDR system or even initiate
            legal proceedings where warranted, banks / FIs should review all
            eligible cases where the exposure of the financial system is more than
            Rs.100 crore and decide about referring the case to CDR system or to
            proceed under the new Securitisation and Reconstruction of Financial
            Assets and Enforcement of Securities Interest Act, 2002 or to file a suit
            in DRT etc.

5.3   Legal Basis




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                                                            DBOD-MC On IRAC Norms - 2014
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). The Debtor-Creditor Agreement (DCA) and the Inter-Creditor
      Agreement (ICA) shall provide the legal basis to the CDR mechanism.
      The debtors shall have to accede to the DCA, either at the time of
      original loan documentation (for future cases) or at the time of reference
      to Corporate Debt Restructuring Cell. Similarly, all participants in the
      CDR mechanism through their membership of the Standing Forum shall
      have to enter into a legally binding agreement, with necessary
      enforcement and penal clauses, to operate the System through laid-
      down policies and guidelines. The ICA signed by the creditors will be
      initially valid for a period of 3 years and subject to renewal for further
      periods of 3 years thereafter. The lenders in foreign currency outside the
      country are not a part of CDR system. Such creditors and also creditors
      like GIC, LIC, UTI, etc., who have not joined the CDR system, could join
      CDR mechanism of a particular corporate by signing transaction to
      transaction ICA, wherever they have exposure to such corporate.

5.3.2 The Inter-Creditor Agreement would be a legally binding agreement
      amongst the creditors, with necessary enforcement and penal clauses,
      wherein the creditors would commit themselves to abide by the various
      elements of CDR system. Further, the creditors shall agree that if 75 per
      cent of creditors by value and 60 per cent of the creditors by number,
      agree to a restructuring package of an existing debt (i.e., debt
      outstanding), the same would be binding on the remaining creditors.
      Since Category 1 CDR Scheme covers only standard and sub-standard
      accounts, which in the opinion of 75 per cent of the creditors by value
      and 60 per cent of creditors by number, are likely to become performing
      after introduction of the CDR package, it is expected that all other
      creditors (i.e., those outside the minimum 75 per cent by value and 60
      per cent by number) would be willing to participate in the entire CDR
      package, including the agreed additional financing.

5.3.3 In order to improve effectiveness of the CDR mechanism a clause may
      be incorporated in the loan agreements involving consortium / syndicate
      accounts whereby all creditors, including those which are not members
      of the CDR mechanism, agree to be bound by the terms of the
      restructuring package that may be approved under the CDR



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                                                     DBOD-MC On IRAC Norms - 2014
            mechanism, as and when restructuring may become necessary.

      5.3.4 One of the most important elements of Debtor-Creditor Agreement
            would be \'stand still\' agreement binding for 90 days, or 180 days by both
            sides. Under this clause, both the debtor and creditor(s) shall agree to a
            legally binding \'stand-still\' whereby both the parties commit themselves
            not to take recourse to any other legal action during the \'stand-still\'
            period, this would be necessary for enabling the CDR System to
            undertake the necessary debt restructuring exercise without any outside
            intervention, judicial or otherwise. However, the stand-still clause will be
            applicable only to any civil action either by the borrower or any lender
            against the other party and will not cover any criminal action. Further,
            during the stand-still period, outstanding foreign exchange forward
            contracts, derivative products, etc., can be crystallised, provided the
            borrower is agreeable to such crystallisation. The borrower will
            additionally undertake that during the stand-still period the documents
            will stand extended for the purpose of limitation and also that it will not
            approach any other authority for any relief and the directors of the
            borrowing company will not resign from the Board of Directors during
            the stand-still period.


5.4 Sharing of Additional finance

      5.4.1 Additional finance, if any, is to be provided by all creditors of a \'standard\'
            or \'substandard account\' irrespective of whether they are working capital
            or term creditors, on a pro-rata basis. In case for any internal reason,
            any creditor (outside the minimum 75 per cent and 60 per cent) does not
            wish to commit additional financing, that creditor will have an option in
            accordance with the provisions of para 5.5.

      5.4.2 The providers of additional finance, whether existing creditors or new
            creditors, shall have a preferential claim, to be worked out under the
            restructuring package, over the providers of existing finance with
            respect to the cash flows out of recoveries, in respect of the additional
            exposure

5.5   Exit Option

      5.5.1 As stated in para 5.4.1 a creditor (outside the minimum 75 per cent and




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                                                              DBOD-MC On IRAC Norms - 2014
            60 per cent) who for any internal reason does not wish to commit
            additional finance will have an option. At the same time, in order to
            avoid the \"free rider\" problem, it is necessary to provide some
            disincentive to the creditor who wishes to exercise this option. Such
            creditors can either (a) arrange for its share of additional finance to be
            provided by a new or existing creditor, or (b) agree to the deferment of
            the first year\'s interest due to it after the CDR package becomes
            effective. The first year\'s deferred interest as mentioned above, without
            compounding, will be payable along with the last instalment of the
            principal due to the creditor.

      5.5.2 In addition, the exit option will also be available to all lenders within the
            minimum 75 percent and 60 percent provided the purchaser agrees to
            abide by restructuring package approved by the Empowered Group.
            The exiting lenders may be allowed to continue with their existing level
            of exposure to the borrower provided they tie up with either the existing
            lenders or fresh lenders taking up their share of additional finance.

      5.5.3 The lenders who wish to exit from the package would have the option to
            sell their existing share to either the existing lenders or fresh lenders, at
            an appropriate price, which would be decided mutually between the
            exiting lender and the taking over lender. The new lenders shall rank on
            par with the existing lenders for repayment and servicing of the dues
            since they have taken over the existing dues to the exiting lender.

      5.5.4 In order to bring more flexibility in the exit option, One Time Settlement
            can also be considered, wherever necessary, as a part of the
            restructuring package. If an account with any creditor is subjected to
            One Time Settlement (OTS) by a borrower before its reference to the
            CDR mechanism, any fulfilled commitments under such OTS may not
            be reversed under the restructured package. Further payment
            commitments of the borrower arising out of such OTS may be factored
            into the restructuring package.

5.6   Category 2 CDR System

      5.6.1 There have been instances where the projects have been found to be
            viable by the creditors but the accounts could not be taken up for
            restructuring under the CDR system as they fell under \'doubtful\'
            category. Hence, a second category of CDR is introduced for cases



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                                                             DBOD-MC On IRAC Norms - 2014
                where the accounts have been classified as \'doubtful\' in the books of
                creditors, and if a minimum of 75% of creditors (by value) and 60%
                creditors (by number) satisfy themselves of the viability of the account
                and consent for such restructuring, subject to the following conditions :

                (i)    It will not be binding on the creditors to take up additional financing
                       worked out under the debt restructuring package and the decision
                       to lend or not to lend will depend on each creditor bank / FI
                       separately. In other words, under the proposed second category of
                       the CDR mechanism, the existing loans will only be restructured
                       and it would be up to the promoter to firm up additional financing
                       arrangement with new or existing creditors individually.

                (ii)   All other norms under the CDR mechanism such as the standstill
                       clause, asset classification status during the pendency of
                       restructuring under CDR, etc., will continue to be applicable to this
                       category also.

          5.6.2 No individual case should be referred to RBI. CDR Core Group may
                take a final decision whether a particular case falls under the CDR
                guidelines or it does not.

          5.6.3 All the other features of the CDR system as applicable to the First
                Category will also be applicable to cases restructured under the Second
                Category.

    5.7   Incorporation of \'right to recompense\' clause

          All CDR approved packages must incorporate creditors\' right to accelerate
          repayment and borrowers\' right to pre-pay. All restructuring packages must
          incorporate `Right to recompense\' clause and it should be based on certain
          performance criteria of the borrower. In any case, minimum 75 per cent of the
          recompense amount should be recovered by the lenders and in cases where
          some facility under restructuring has been extended below base rate, 100 per
          cent of the recompense amount should be recovered.


B   SME Debt Restructuring Mechanism

    Apart from CDR Mechanism, there exists a much simpler mechanism for
    restructuring of loans availed by Small and Medium Enterprises (SMEs). Unlike in
    the case of CDR Mechanism, the operational rules of the mechanism have been left



                                             95
                                                                  DBOD-MC On IRAC Norms - 2014
to be formulated by the banks concerned. This mechanism will be applicable to all
the borrowers which have funded and non-funded outstanding up to Rs.10 crore
under     multiple    /consortium   banking arrangement.     Major elements      of   this
arrangements are as under :

(i)     Under this mechanism, banks may formulate, with the approval of their Board
        of Directors, a debt restructuring scheme for SMEs within the prudential norms
        laid down by RBI. Banks may frame different sets of policies for borrowers
        belonging to different sectors within the SME if they so desire.

(ii)    While framing the scheme, banks may ensure that the scheme is simple to
        comprehend and will, at the minimum, include parameters indicated in these
        guidelines.

(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.

(iv)    Banks should work out the restructuring package and implement the same
        within a maximum period of 90 days from date of receipt of requests.

(v)     The SME Debt Restructuring Mechanism will be available to all borrowers
        engaged in any type of activity.

(vi)    Banks may review the progress in rehabilitation and restructuring of SMEs
        accounts on a quarterly basis and keep the Board informed.




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                                                              DBOD-MC On IRAC Norms - 2014
                                                                                       Annex - 5

                                          Key Concepts

(i)     Advances

        The term \'Advances\' will mean all kinds of credit facilities including cash credit,
        overdrafts, term loans, bills discounted / purchased, factored receivables, etc. and
        investments other than that in the nature of equity.

(ii)    Agricultural Activities

        As defined in RPCD circular RPCD.No.Plan.BC.84/04.09.01/2006-07 dated April 30,
        2007 as modified from time to time.

(iii)   Fully Secured

        When the amounts due to a bank (present value of principal and interest receivable as
        per restructured loan terms) are fully covered by the value of security, duly charged in
        its favour in respect of those dues, the bank\'s dues are considered to be fully secured.
        While assessing the realisable value of security, primary as well as collateral securities
        would be reckoned, provided such securities are tangible securities and are not in
        intangible form like guarantee etc., of the promoter / others. However, for this purpose
        the bank guarantees, State Government Guarantees and Central Government
        Guarantees will be treated on par with tangible security.

(iv)    Restructured Accounts

        A restructured account is one where the bank, for economic or legal reasons relating to
        the borrower\'s financial difficulty, grants to the borrower concessions that the bank
        would not otherwise consider. Restructuring would normally involve modification of
        terms of the advances / securities, which would generally include, among others,
        alteration of repayment period / repayable amount/ the amount of instalments / rate of
        interest (due to reasons other than competitive reasons). However, extension in
        repayment tenor of a floating rate loan on reset of interest rate, so as to keep the EMI
        unchanged provided it is applied to a class of accounts uniformly will not render the
        account to be classified as `Restructured account\'. In other words, extension or
        deferment of EMIs to individual borrowers as against to an entire class, would render
        the accounts to be classified as \'restructured accounts\'.


        In the cases of roll-over of short term loans, where proper pre-sanction assessment has



                                                97
                                                                     DBOD-MC On IRAC Norms - 2014
       been made, and the roll-over is allowed based on the actual requirement of the
       borrower and no concession has been provided due to credit weakness of the
       borrower, then these might not be considered as restructured accounts. However, if
       such accounts are rolled-over more than two times, then third roll-over onwards the
       account would have to be treated as a restructured account. Besides, banks should be
       circumspect while granting such facilities as the borrower may be availing similar
       facilities from other banks in the consortium or under multiple banking. Further, Short
       Term Loans for the purpose of this provision do not include properly assessed regular
       Working Capital Loans like revolving Cash Credit or Working Capital Demand Loans.

(v)    Repeatedly Restructured Accounts

       When a bank restructures an account a second (or more) time(s), the account will be
       considered as a \'repeatedly restructured account\'. However, if the second restructuring
       takes place after the period upto which the concessions were extended under the terms
       of the first restructuring, that account shall not be reckoned as a \'repeatedly
       restructured account\'.

(vi)   SMEs

       Small and Medium Enterprise (SME) is an undertaking defined in RPCD circulars
       RPCD.PLNFS.BC.No.63.06.02/2006-07 dated April 4, 2007 amended from time to time.

(vii) Specified Period

       Specified Period means a period of one year from the commencement of the first
       payment of interest or principal, whichever is later, on the credit facility with longest
       period of moratorium under the terms of restructuring package.

(viii) Satisfactory Performance

       Satisfactory performance during the specified period means adherence to the following
       conditions during that period.

       Non-Agricultural Cash Credit Accounts

       In the case of non-agricultural cash credit accounts, the account should not be out of
       order any time during the specified period, for a duration of more than 90 days. In
       addition, there should not be any overdues at the end of the specified period.

       Non-Agricultural Term Loan Accounts

       In the case of non-agricultural term loan accounts, no payment should remain overdue
       for a period of more than 90 days. In addition there should not be any overdues at the



                                               98
                                                                    DBOD-MC On IRAC Norms - 2014
     end of the specified period.

     All Agricultural Accounts

     In the case of agricultural accounts, at the end of the specified period the account
     should be regular.

* Note: It is observed that in a rising interest rate scenario, banks normally extend the
repayment period by keeping the EMI constant. However, in a few cases this resulted in
extending the repayment period much beyond the retirement age or the revenue generating
capacity of the borrower. Therefore, it is advised that :

     (i) While extending repayment period in respect of housing loans to keep the EMI
     unchanged, banks should satisfy themselves about the revenue generation / repaying
     capacity of the borrower during the entire repayment period including the extended
     repayment period.

     (ii) Banks should not extend the repayment period of such borrowers where they have
     concerns regarding the repaying capacity over the extended period, even if the
     borrowers want to extend the tenor to keep the EMI unchanged.

     (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.




                                               99
                                                              DBOD-MC On IRAC Norms - 2014
                                                                                                                                               Annex - 6
                                                     Disclosure of Restructured Accounts                                                  (Rs. in Crore)
Sl   Type of Restructuring        Under CDR Mechanism                  Under SME Debt                       Others                              Total
N                                                                Restructuring Mechanism
o    Asset Classification      Stan   Sub-   Dou     Lo   Tot   Stan   Sub-   Dou     Lo   T    Sta   Sub     Dou     L    To    Sta    Sub      Dou     L    Total
     Details                   dard   Stan   btful   ss   al    dard   Stan   btful   ss   ot   ndar -        btful   os   tal   ndar -          btful   os
                                      dard                             dard                al   d     Sta             s          d      Sta              s
                                                                                                      ndar                              ndar
                                                                                                      d                                 d
1    Restructured    No. of
     Accounts    as  borrow
     on April 1 of   ers
     the         FY  Amount
     (opening        outstan
     figures)*       ding
                     Provisi
                     on
                     thereon
2    Fresh           No. of
     restructuring   borrow
     during the year ers
                     Amount
                     outstan
                     ding
                     Provisi
                     on
                     thereon
3    Upgradations    No. of
     to restructured borrow
     standard        ers

                                                                                                      100                        DBOD-MC On IRAC Norms-2014
    category           Amount
    during the FY      outstan
                       ding
                       Provisi
                       on
                       thereon
4   Restructured       No. of
    standard           borrow
    advances           ers
    which cease to
    attract higher
    provisioning       Amount
    and      /    or   outstan
    additional risk    ding
    weight at the      Provisi
    end of the FY      on
    and        hence   thereon
    need not be
    shown         as
    restructured
    standard
    advances      at
    the beginning
    of the next FY
5   Downgradation   No. of
    s             ofborrow
    restructured    ers
    accounts        Amount
    during the FY   outstan
                    ding
                    Provisi
                    on
                    thereon
6   Write-offs   of No. of
    restructured    borrow
                                 101   DBOD-MC On IRAC Norms-2014
    accounts           ers
    during the FY      Amount
                       outstan
                       ding
7   Restructured       No. of
    Accounts      as borrow
    on March 31 of ers
    the FY             Amount
                       outstan
    (closing           ding
    figures*)          Provisi
                       on
                       thereon
       *Excluding the figures of Standard Restructured Advances which do not attract higher provisioning or risk weight (if applicable).

     Instructions ­ For the purpose of disclosure in the above Format, the following instructions are required to be followed:

         (i) Advances restructured under CDR Mechanism, SME Debt Restructuring Mechanism and other categories of restructuring should be
             shown separately.
         (ii) Under each of the above categories, restructured advances under their present asset classification, i.e. standard, sub-standard, doubtful
             and loss should be shown separately.

         (iii) Under the `standard\' restructured accounts; accounts, which have objective evidence of no longer having inherent credit weakness,
             need not be disclosed. For this purpose, an objective criteria for accounts not having inherent credit weakness is discussed below:

                 (a) As regards restructured accounts classified as standard advances, in view of the inherent credit weakness in such accounts,
                      banks are required to make a general provision higher than what is required for otherwise standard accounts in the first two
                      years from the date of restructuring. In case of moratorium on payment of interest / principal after restructuring, such advances
                      attract the higher general provision for the period covering moratorium and two years thereafter.



                                                                                                           102                     DBOD-MC On IRAC Norms-2014
(b) Further, restructured standard unrated corporate exposures and housing loans are also subjected to an additional risk weight of
     25 percentage point with a view to reflect the higher element of inherent risk which may be latent in such entities (cf. paragraph
     5.8.3 of circular DBOD.No.BP.BC.90/20.06.001/2006-07 dated April 27, 2007 on `Prudential Guidelines on Capital Adequacy
     and Market Discipline - Implementation of the New Capital Adequacy Framework\' and paragraph 4 of circular
     DBOD.No.BP.BC.76/21.04.0132/2008-09 dated November 3, 2008 on `Prudential Guidelines on Restructuring of Advances by
     Banks\' respectively).

(c) The aforementioned [(a) and (b)] additional/ higher provision and risk weight cease to be applicable after the prescribed period if
     the performance is as per the rescheduled programme. However, the diminution in the fair value will have to be assessed on
     each balance sheet date and provision should be made as required.

(d) Restructured accounts classified as sub-standard and doubtful (non-performing) advances, when upgraded to standard category
     also attract a general provision higher than what is required for otherwise standard accounts for the first year from the date of
     up-gradation, in terms of extant guidelines on provisioning requirement of restructured accounts. This higher provision ceases
     to be applicable after one year from the date of upgradation if the performance of the account is as per the rescheduled
     programme. However, the diminution in the fair value will have to be assessed on each balance sheet date and provision
     made as required.

(e) Once the higher provisions and/or risk weights (if applicable and as prescribed from time to time by RBI) on restructured
     standard advances revert to the normal level on account of satisfactory performance during the prescribed periods as
     indicated above, such advances, henceforth, would no longer be required to be disclosed by banks as restructured standard
     accounts in the \"Notes on Accounts\" in their Annual Balance Sheets. However, banks should keep an internal record of such
     restructured accounts till the provisions for diminution in fair value of such accounts are maintained.




                                                                                          103                    DBOD-MC On IRAC Norms-2014
(iv) Disclosures should also indicate the intra category movements both on upgradation of restructured NPA accounts as well as on
       slippage. These disclosures would show the movement in restructured accounts during the financial year on account of addition,
       upgradation, downgradation, write off, etc.

(v) While disclosing the position of restructured accounts, banks must disclose the total amount outstanding in all the accounts / facilities of
       borrowers whose accounts have been restructured along with the restructured part or facility. This means that even if only one of the
       facilities / accounts of a borrower has been restructured, the bank should also disclose the entire outstanding amount pertaining to all
       the facilities/ accounts of that particular borrower.

(vi) Upgradation during the year (Sl No. 3 in the Disclosure Format) means movement of `restructured NPA\' accounts to `standard asset
       classification from substandard or doubtful category\' as the case may be. These will attract higher provisioning and / or risk weight\'
       during the `prescribed period\' as prescribed from time to time. Movement from one category into another will be indicated by a (-) and a
       (+) sign respectively in the relevant category.

(vii) Movement of Restructured standard advances (Sr. No. 4 in the Disclosure Format) out of the category into normal standard advances
       will be indicated by a (-) sign in the column \"Standard\".


(viii)        Downgradation from one category to another would be indicated by (-) ve and (+) ve sign in the relevant categories.


(ix)         Upgradation, downgradation and write-offs are from their existing asset classifications.


(x)          All disclosures are on the basis of current asset classification and not `pre-restructuring\' asset classification.




                                                                                                        104                       DBOD-MC On IRAC Norms-2014
      (xi) 10Additional/fresh sanctions made to an existing restructured account can be shown under Sr. No. 2 `Fresh Restructuring during the
           year\' with a footnote stating that the figures under Sr. No.2 include Rs. xxx crore of fresh/additional sanction (no. of accounts and
           provision thereto also) to existing restructured accounts. Similarly, reductions in the quantity of restructured accounts can be shown
           under Sr.No.6 `write-offs of restructured accounts during the year\' with a footnote stating that that it includes Rs. xxx crore (no. of
           accounts and provision thereto also) of reduction from existing restructured accounts by way of sale / recovery.
      (xii) Closing balance as on March 31st of a FY should tally arithmetically with opening balance as on April 1st of the FY + Fresh
           Restructuring during the year including additional /fresh sanctions to existing restructured accounts + Adjustments for movement across
           asset categories ­ Restructured standard advances which cease to attract higher risk weight and/or provision ­ reductions due to write-
           offs/sale/recovery, etc. However, if due to some unforeseen/ any other reason, arithmetical accuracy is not achieved, then the difference
           should be reconciled and explained by way of a foot-note.




10
     Sl Nos. (xi) & (xii) are revisions.
                                                                                                       105                    DBOD-MC On IRAC Norms-2014
                                                                                     Annex - 7
                                          (Cf. para 2 of the covering letter to the circular)


         List of Circulars consolidated by the Master Circular on IRAC Norms


Sl.                                                                                 Para No. of
              Circular No.            Date                   Subject
No.                                                                                   the MC
                                                    Prudential Norms on
                                                    Income Recognition, Asset
      DBOD.No.BP.BC.125/21.04.                      Classification and              4.2.15.5 (iv)
1.                                26.06.2014
      048/2013-14                                   Provisioning Pertaining to      and (v)
                                                    Advances - Projects under
                                                    Implementation
                                                    Prudential Norms for
                                                    Conversion of Unpaid
      Mailbox Clarification                         Interest into
2.                                11.04.2014                                        14.2.5
                                                    \'Funded Interest Term
                                                    Loan\' (FITL), Debt or
                                                    Equity Instruments
                                                    Framework for Revitalising
                                                    Distressed Assets in the
                                                                                    6.5 (A) (a)
      Mailbox Clarification                         Economy ­ Refinancing of
3.                                09.04.2014                                        (iii)
                                                    Project Loans, Sale of
                                                    NPAs and Other
                                                    Regulatory Measures
                                                                                    6.3 (iii)
                                                    Framework for Revitalising
                                                                                    6.4 (d) (iv)
                                                    Distressed Assets in the
      DBOD.No.BP.BC.98/21.04.1                                                      6.5 (A) (a)
                                  26.02.2014        Economy ­ Refinancing of
4.    32/2013-14                                                                    (ii) and (iii)
                                                    Project Loans, Sale of
                                                                                    7.3 (ix)
                                                    NPAs and Other
                                                                                    7.3 (x)
                                                    Regulatory Measures
                                                                                    Part C-2
                                                    Framework for Revitalising
      DBOD.No.BP.BC.97/21.04.1                      Distressed Assets in the
5.                                26.02.2014        Economy ­ Guidelines on         Part C - 1
      32/2013-14
                                                    Joint Lenders Forum (JLF)
                                                    and Corrective Action Plan
                                                    Utilisation of Floating
      DBOD.No.BP.BC.95/21.04.0                      Provisions / Counter            5.10 (iii) (c)
6.                                7.02.2014
      48/2013-14                                    Cyclical Provisioning           5.10 (v)
                                                    Buffer
                                                    Capital and Provisioning
                                                    Requirements for
      DBOD.No.BP.BC.85/21.06.2
7.                                15.01.2014        Exposures to entities with      5.5 (vi)
      00/2013-14
                                                    Unhedged Foreign
                                                    Currency Exposures
                                                    Prudential Norms on
      DBOD.No.BP.BC.78/21.04.0                      Income Recognition, Asset
8.                                20.12.2013                                        4.2.21
      48/2013-14                                    Classification and
                                                    Provisioning pertaining to
                                              106                      DBOD-MC On IRAC Norms-2014
                                                Advances ­ Credit Card
                                                Accounts

                                                Housing Sector: New sub-
                                                sector CRE (Residential
      DBOD.BP.BC.No.                            Housing) within CRE &
9.                               21.06.2013                                    5.5 (c)
      104/08.12.015/2012-13                     Rationalisation of
                                                provisioning, risk-weight
                                                and LTV ratios
                                                Review of Prudential
                                                Guidelines on                  4.2.15.3 (iv)
      Mail Box Clarification
10.                              06.06.2013     Restructuring of Advances      4.2.15.4 (iii)
                                                by Banks and Financial         Part B
                                                Institutions
                                                Review of Prudential
      DBOD.No.BP.BC-                            Guidelines on                  4.2.15, Part
11.   99/21.04.048/2012-13       30.05.2013     Restructuring of Advances      B, Annex 4
                                                by Banks and Financial         &5
                                                Institutions
                                                Advances Guaranteed by
                                                Credit Risk Guarantee
      DBOD.No.BP.BC-
                                                Fund Trust for Low Income
12.   90/21.04.048/2012-13       16.04.2013                                    5.9.5
                                                Housing (CRGFTLIH) ­
                                                Risk Weights and
                                                Provisioning
      DBOD.No.BP.BC-                            Prudential Norms on
13.   83/21.04.048/2012-13       18.03.2013     Advances to Infrastructure     5.4 (iii) (c)
                                                Sector
                                                Disclosure Requirements
      DBOD.BP.BC.No.80/21.04.1                  on Advances                    Part B &
14.                              31.01.2013
      32/2012-13                                Restructured by Banks and      Annex - 6
                                                Financial Institutions
                                                Review of Prudential
      DBOD.No.BP.BC-                            Guidelines on
                                                                               4.2.15.3 (iv)
15.   63/21.04.048/2012-13       26.11.2012     Restructuring of Advances
                                                                               4.2.15.4 (iii)
                                                by Banks and Financial
                                                Institutions
                                                NPA Management ­
      DBOD.No.BP.BC-
                                                Requirement of an
16.   42/21.04.048/2012-13       14.09.2012                                    4.2.21
                                                Effective Mechanism and
                                                Granular Data
      DBOD.No.BP.BC-                            Revisions to the
17.   103/21.04.177/2011-12      07.05.2012     Guidelines on                  4.2.20
                                                Securitisation Transactions
      DBOD.No.BP.BC-                            Prudential Norms for Off-
                                                                               4.2.7 (d) to
18.   28/21.04.157/2011-12       11.08.2011     balance Sheet Exposures
                                                                               (h)
                                                of Banks
                                                Prudential Guidelines on
      DBOD.BP.BC.No.99/21.04.1
19.                              10.06.2011     Restructuring of Advances
      32/2010-11
                                                by Banks                       12.4.2
                                                Enhancement of Rates of        5.3 (ii),
      DBOD.No.BP.BC.94/21.04.0                  Provisioning for Non-          5.4(i), 5.4(ii)
20.                              18.05.2011
      48/2011-12                                Performing Assets and          5.8(i),
                                                Restructured Advances          5.8(ii),
                                          107                     DBOD-MC On IRAC Norms-2014
                                                                               5.9.14


      DBOD.No.BP.BC.87/21.04.0                  Provisioning Coverage
21.                              21.04.2011
      48/2010-11                                Ratio (PCR) for Advances       5.10
      DBOD.BP.BC.No.74/21.04.1                  Credit Support to Micro
22.                              19.01.2011
      32/2010-11                                Finance Institutions           15.2.2
                                                Housing Loans by
      DBOD.No.BP.BC.69/08.12.0                  Commercial Banks ­ LTV
23.                              23.12.2010
      01/2010-11                                Ratio, Risk Weight and
                                                Provisioning                   5.9.13
                                                Prudential Guidelines on
      DBOD.BP.No.49/21.04.132/
24.                              07.10.2010     Restructuring of Advances
      2010-11
                                                by Banks                       15.2.2
                                                Provisioning for Standard
25.   Mail Box Clarification     06.07.2010     Assets ­ Medium
                                                Enterprises                    5.5 (vi)
                                                Prudential Norms on            5.4 (ii), and
      DBOD.No.BP.BC.96/08.12.0
26.                              23.04.2010     Advances to Infrastructure     5.4 (iii) (b)
      14/2009-10
                                                Sector
                                                Prudential Norms on
                                                Income Recognition, Asset      4.2.15
      DBOD.No.BP.BC.85/21.04.0                  Classification and
27.                              31.03.2010
      48/2009-10                                Provisioning Pertaining to
                                                Advances - Projects under
                                                Implementation
                                                Second Quarter Review of
                                                Monetary Policy for the        5.10,
      DBOD.No.BP.BC.64/21.04.0
28.                              01.12.2009     Year 2009-10 -                 Annex - 3
      48/2009-10
                                                Provisioning Coverage for
                                                Advances
                                                Second Quarter Review of
                                                Monetary Policy for the        5.5 (i)
      DBOD.No.BP.BC.58/21.04.0
29.                              05.11.2009     Year 2009-10 -
      48/2009-10
                                                Provisioning Requirement
                                                for Standard Assets
                                                Prudential Norms on
                                                Income Recognition, Asset      3.2, 3.4 3.5,
      DBOD.No.BP.BC.46/21.04.0                  Classification and             Annex -1
30.                              24.09.2009
      48/2009-10                                Provisioning pertaining to
                                                Advances - Computation of
                                                NPA Levels
                                                Prudential Treatment in        5.6.3
      DBOD.No.BP.BC.33/21.04.0
31.                              27.08.2009     respect of Floating
      48/2009-10
                                                Provisions
32.   DBOD.No.BP.BC.125/21.04.                  Prudential Norms on
                                 17.04.2009                                    5.4(iii)
      048/2008-09                               Unsecured Advances
33.   DBOD.No.BP.BC.No.124/21.                  Prudential Guidelines on
                                 17.04.2009                                    Annex - 4
      04.132/2008-09                            Restructuring of Advances
34.   DBOD.No.BP.BC.122/21.04.   09/04/2009     Prudential Treatment in        5.6.3
      048/2008-09                               respect of Floating
                                                Provisions
                                          108                     DBOD-MC On IRAC Norms-2014
35.   DBOD.BP.BC.121/21.04.132                  Prudential guidelines on
      /2008-09                   09.04.2009     Restructuring of Advances       12.4.2, 17

36.


37.   DBOD.No.BP.BC.118/21.04.   25/03/2009     Prudential Treatment of
      048/2008-09                               different Types of              5.6.3, 5.7,
                                                Provisions in respect of        5.9.9, 5.9.10
                                                Loan Portfolios
38.   DBOD.BP.BC.83/21.01.002/   15/11/2008     Review of Prudential            5.5
      2008-09                                   Norms - Provisioning for
                                                Standard Assets and Risk
                                                Weights for Exposures to
                                                Corporates, Commercial
                                                Real Estate and NBFC-
                                                ND-SI
39.   DBOD.No.BP.BC.84/21.04.0   14/11/2008     Asset Classification Norms      4.2.15
      48/2008-09                                for Infrastructure Projects
                                                under Implementation
40.   DBOD.BP.BC.76/21.04.132/   03.11.2008     Prudential guidelines on
      2008-09                                   Restructuring of Advances       15.2.2

41.   DBOD.BP.BC.No.69/21.03.0   29/10/2008     Prudential Norms for Off-       4.2.7 (iv)
      09/2008-09                                Balance Sheet Exposures
                                                of Banks
42.   DBOD.BP.BC.58/21.04.048/   13.10.2008     (i) Disbursal of Loans          Annex - 4
      2008-09                                   against Sanctioned Limits
                                                (ii) Restructuring of Dues
                                                of the Small and Medium
                                                Enterprises (SMEs)
43.   DBOD.No.BP.BC.57/21.04.1   13/10/2008     Prudential Norms for Off-       2.1.2 (vii),
      57/2008-09                                balance Sheet Exposures         4.2.7 (iv) to
                                                of Banks                        4.2.7 (vii)

44.   DBOD.BP.BC.37/21.04.132/   27.08.2008     Prudential guidelines on        Part B
      2008-09                                   Restructuring of Advances-
                                                comprehensive guidelines
45.   DBOD.No.BP.BC.31/21.04.1   08/08/2008     Prudential Norms for Off-       2.1.2 (vii),
      57/2008-09                                balance Sheet Exposures         5.9.12
                                                of Banks
46.   DBOD.BP.BC.82/21.04.048/   08.05.2008     Prudential Norms on Asset       4.2.15 (iv)
      2007-08                                   Classification Pertaining to
                                                Advances -
                                                Infrastructure Projects
                                                under Implementation and
                                                Involving Time Overrun

47.   DBOD.No.BP.BC.34/21.04.0   04.10.2007     Guidelines on Purchase /        7.3 (iii)
      48/2007-08                                Sale of Non Performing
                                                Assets

48.   DBOD.No.BP.BC.97/21.04.0   16.05.2007     Guidelines on Purchase /        7.3 (iii)
      48/2006-07                                Sale of Non Performing
                                                Assets

                                          109                      DBOD-MC On IRAC Norms-2014
49.   DBOD.No.BP.BC.76/21.04.0   12.04.2007     Prudential Norms on            4.2.15 (iv)
      48/2006-07                                Income Recognition, Asset
                                                Classification and
                                                Provisioning Pertaining to
                                                Advances - Projects
                                                Involving Time Overrun
50.   DBOD.No.BP.BC.68/21.04.0   13.03.2007     Prudential Norms on            5.6.2
      48/2006-07                                Creation and Utilisation of
                                                Floating Provisions
51.   DBOD.No.BP.BC.53/21.04.0   31.01.2007     Third Quarter Review of        5.5 (i)
      48/2006-2007                              the Annual Statement on
                                                Monetary Policy for the
                                                year 2006-07 -
                                                Provisioning Requirement
                                                for Standard Assets and
                                                Risk Weights for Capital
                                                Adequacy
52.   DBOD.No.BP.BC.21/21.04.0   12.07.2006     Annual Policy Statement        5.5 (i)
      48/2006-2007                              for the year 2006-07 -
                                                Additional Provisioning
                                                Requirement for Standard
                                                Assets
53.   DBOD.NO.BP.BC.89/21.04.    22.06.2006     Prudential norms on            5.6
      048/2005-06                               creation and utilization of
                                                floating provisions
54.   DBOD.NO.BP.BC.85/21.04.    29.05.2006     Annual Policy Statement        5.5(i)
      048/2005-06                               for the year 2006-07:
                                                Additional Provisioning
                                                Requirement for Standard
                                                Assets

55.   DBOD.NO.BP.BC.45/21.042    10.11.2005     Revised Guidelines on          Part B
      1.04.048/2005-06                          Corporate Debt
                                                Restructuring(CDR)
                                                Mechanism

56.   DBOD.NO.BP.BC.46/21.042    10.11.2005     Debt restructuring             Part B
      1.04.048/2005-06                          mechanism for Small and
                                                Medium Enterprises
                                                (SMEs)

57.   DBOD.NO.BP.BC.40/21.04.    04.11.2005     Mid Term Review of             5.5(i)
      048/2005-06                               Annual Policy Statement
                                                for the year 200506:
                                                Additional Provisioning
                                                Requirement for Standard
                                                Assets
58.   DBOD.NO.BP.BC.34/21.04.    08.09.2005     Debt restructuring             Part B
      132/2005-06                               mechanism for Small and
                                                Medium
                                                Enterprises (SMEs) -
                                                Announcement made
                                                by the Union Finance
                                                Minister

                                          110                     DBOD-MC On IRAC Norms-2014
59.   DBOD.NO.BP.BC.16/21.04.     13.07.2005     Guidelines on                  7
      048/2005-06                                purchase/sale of Non
                                                 performing Assets

60.   DBOD.BP.BC.34/21.04.048/    26.08.2004     Repayment schedule of          4.2.13(vi)
      2004-05                                    rural housing loans


61.   DBOD.BP.BC.29/21.04.048/                   Prudential norms ­ State
      2004-05                     13.08.2004     Government guaranteed          4.2.14
                                                 exposures
62.   RPCD.No.Plan.BC.92/04.09.   24.06.2004     Flow of credit to              4.2.13 (iv)
      01/2003-04                                 Agriculture

63.   DBOD No.BP.BC               24.06.2004     Prudential Norms for           2.1.2(iv),(v)
      102/21.04.048/2003-04                      Agricultural Advances          4.2.10,
                                                                                4.2.13(i)
64.
      DBOD
                                                 Additional Provisioning
      No.BP.BC.99/21.04.048/200   21.06.2004                                    5
                                                 Requirement for NPAs
      3-04

65.   DBOD No. BP.BC              17.06.2004     Prudential Guidelines on       5.4
      97/21.04.141/2003-04                       Unsecured Exposures

66.   DBOD No.BP.BC               17.06.2004     Country Risk Management        5.9.8
      96/21.04.103/2003-04                       Guidelines
67.                                              Guidelines on sale of
                                                 financial assets to
      DBODNo.BP.BC                               Securitisation /
                                  23.04.2003                                    6
      96/21.04.048/2002-03                       reconstruction company
                                                 and related issues

68.                                              Projects under
      DBOD BP.BC. NO.
                                  27.02.2003     implementation involving       4.2.15
      74/21.04.048/2002-2003
                                                 time overrun
69.   DBOD No. BP.BC.             19.02.2003     Risk Management                5.9.8
      71/21.04.103/2002-2003                     Systems in Banks ­
                                                 Guidelines on Country
                                                 Risk Management

70.                                              Upgradation of loan
      DBOD BP.BC. No.
                                  10.02.2003     accounts classified as         4.2.5
      69/21.04.048/2002-03
                                                 NPAs
71.   DBOD. BP.BC No.                            Agricultural loans affected
                                  30.11.2002                                    4.2.13
      44/21.04.048/2002-03                       by natural calamities
72.   DBOD No.BP.BC. 108/         28.05.2002     Income recognition, asset      4.2.15
      21.04.048/2001-2002                        classification and
                                                 provisioning on advances -
                                                 treatment of
                                                 projects under
                                                 implementation involving
                                                 time overrun


                                           111                     DBOD-MC On IRAC Norms-2014
73.   DBOD No.BP.BC.101/         09.05.2002     Corporate Debt                   Part B
      21.01.002/2001-02                         Restructuring
74.   DBOD No.BP.BC.100/         09.05.2002     Prudential norms on asset        4.1.2
      21.01.002/2001-02                         classification
75.   DBOD No.BP.BC.59/          22.01.2002     Prudential norms on              4.2.13
      21.04.048/2001-2002                       income recognition, asset
                                                classification and
                                                Provisioning agricultural
                                                advances
76.   DBOD No.BP.BC.25/          11.09.2001     Prudential norms on              3
      21.04.048/2000-2001                       income recognition, asset
                                                classification and
                                                provisioning
77.   DBOD No.BP.BC.15/          23.08.2001     Corporate Debt                   Part B
      21.04.114/2000-2001                       Restructuring
78.   DBOD No.BP.BC.132/         14.06.2001     Income Recognition, Asset        4.2
      21.04.048/2000-2001                       Classification and
                                                Provisioning for Advances


79.   DBOD No. BP.BC.128/        07.06.2001     SSI Advances Guaranteed          5.9.5
      21.04.048/2000-2001                       by CGTSI ­ Riskweight
                                                and provisioning norms

80.                                             Monetary & Credit
      DBOD No.BP.BC.
                                 02.05.2001     Policy Measures                  2.1.2
      116/21.04.048/2000-2001
                                                2001-02
81.   DBOD No.BP.BC.98/          30.03.2001     Treatment of Restructured        Part B
      21.04.048/2000-2001                       Accounts
82.   DBOD No.BP.BC.40/          30.10.2000     Income Recognition, Asset        3.5
      21.04.048/2000-2001                       Classification and
                                                Provisioning Reporting of
                                                NPAs to RBI

83.   DBOD.No.BP.BC.164/21.04.   24.04.2000     Prudential Norms on              5.5
      048/2000                                  Capital Adequacy, Income
                                                Recognition, Asset
                                                Classification and
                                                Provisioning, etc.

84.   DBOD.No.BP.BC.144/21.04.   29.02.2000     Income Recognition, Asset        4.2.16
      048/2000                                  Classification and
                                                Provisioning and Other
                                                Related Matters and
                                                Adequacy Standards -
                                                Takeout Finance

85.   DBOD.No.BP.BC.138/21.04.   07.02.2000     Income Recognition, Asset        4.2.18
      048/2000                                  Classification and
                                                Provisioning Export Project
                                                Finance


                                          112                       DBOD-MC On IRAC Norms-2014
86.   DBOD.No.BP.BC.103/21.04.   21.10.99         Income Recognition, Asset      4.2.10
      0 48/ 99                                    Classification and
                                                  Provisioning Agricultural
                                                  Finance by Commercial
                                                  Banks through Primary
                                                  Agricultural Credit
                                                  Societies

87.   DBOD.No.FSC.BC.70/24.01.   17.07.99         Equipment Leasing              3.2.3, 5.8
      001/ 99                                     Activity Accounting/
                                                  Provisioning Norms
88.   DBOD.No.BP.BC.45/21.04.0   10.05.99         Income Recognition Asset       4.2.15
      4 8/99                                      Classification and
                                                  Provisioning Concept of
                                                  Commencement of
                                                  Commercial Production
89.   DBOD.No.BP.BC.120/21.04.   29.12.98         Prudential norms on            4.2.13
      0 48/ 98                                    Income Recognition, Asset
                                                  Classification and
                                                  Provisioning Agricultural
                                                  Loans Affected by Natural
                                                  Calamities
90.   DBOD.No.BP.BC.103/21.01.   31.10.98         Monetary & Credit              4.1.1, 4.1.2,
      0 02/ 98                                    Policy Measures                5.5
91.   DBOD.No.BP.BC.17/21.04.0   04.03.98         Prudential Norms on            4.2.13
      4 8/98                                      Income Recognition, Asset
                                                  Classification and
92.   DOS. No. CO.PP. BC.6/
                                                  Assessments relating to
      11.01.005/ 9697
                                 15.05.97         asset valuation and loan       5.1.1
                                                  loss provisioning
93.   DBOD.No.BP.BC.29/21.04.0   09.04.97         Income Recognition Asset       4.2.13
      4 8/97                                      Classification and
                                                  Provisioning Agricultural
                                                  Advances

94.   DBOD.No.BP.BC.14/21.04.0   19.02.97         Income Recognition Asset       4.2.13
      48/97                                       Classification and
                                                  Provisioning Agricultural
                                                  Advances

95.   DBOD.No.BP.BC.9/21.04.04   29.01.97         Prudential Norms Capital       4.2.4, 4.2.5,
      8 /97                                       Adequacy, Income               4.2.8, 4.2.9
                                                  Recognition Asset
                                                  Classification and
                                                  Provisioning
96.                                               Classification of
      DBOD.No.BP.BC.163/21.04.
                                 24.12.96         Advances with Balance          4.1
      0 48/ 96
                                                  less than Rs. 25,000/
97.                                               Income Recognition
      DBOD.No.BP.BC.65/21.04.0   04.06.96         Asset Classification and
                                                                                 4.2.8
      48/96                                       Provisioning


                                            113                     DBOD-MC On IRAC Norms-2014
98.    DBOD.No.BP.BC.26/21.04.0   19.03.96         Nonperforming             3.5
       48/96                                       Advances Reporting to RBI
99.    DBOD.No.BP.BC.25/21.04.0   19.03.96         Income Recognition        4.2.8, 4.2.14
       48/96                                       Asset Classification and
                                                   Provisioning
100. DBOD.No.BP.BC.134/21.04.     20.11.95         EXIM Bank\'s New Lending         4.2.17
     0 48/ 95                                      Programme Extension of
                                                   Guarantee cum Refinance
                                                   to Commercial Bank in
                                                   respect of Post shipment
                                                   Supplier\'s Credit

101.                                               Income Recognition
       DBOD.No.BP.BC.36/21.04.0                                                    3.2.2, 3.3,
                                  03.04.95         Asset Classification and
       48/95                                                                       4.2.17, 5.8.1
                                                   Provisioning
102. DBOD.No.BP.BC.134/21.04.     14.11.94         Income Recognition              5
     0 48/ 94                                      Asset Classification
                                                   Provisioning and Other
                                                   Related Matters

103.                              16.05.94         Income Recognition Asset        5
                                                   Classification and
       DBOD.No.BP.BC.58/21.04.0
                                                   Provisioning and Capital
       4 894
                                                   Adequacy Norms -
                                                   Clarifications
104. DBOD.No.BP.BC.50/21.04.0                      Income Recognition Asset
     48/94                        30.04.94         Classification and              5.9.4
                                                   Provisioning
105. DOS.BC.4/16.14.001/9394      19.03.94         Credit Monitoring System -      1.3
                                                   Health Code System for
                                                   Borrowal Accounts
106. DBOD.No.BP.BC.8/21.04.04     04.02.94         Income Recognition,             3.1.2, 3.4,
     3 /94                                         Provisioning and Other          4.2
                                                   Related Matters


107. DBOD.No.BP.BC.195/21.04.     24.11.93         Income Recognition, Asset       4.2
     0 48/ 93                                      Classification and
                                                   Provisioning Clarifications
108. DBOD.No.BP.BC.95/21.04.0                      Income Recognition, Asset
     48/93                        23.03.93         Classification, Provisioning    3.2, 5
                                                   and Other Related Matters
109. DBOD.No.BP.BC.59/21.04.0     17.12.92         Income Recognition, Asset       3.2.1, 3.2.2,
     4 392                                         Classification and              4.2
                                                   Provisioning Clarifications


110.                              27.04.92                                         1.1, 1.2,
                                                                                   2.1.1, 2.2,
                                                   Income Recognition, Asset
       DBOD.No.BP.BC.129/21.04.                                                    3.1.1,3.1.3,
                                                   Classification, Provisioning
       0 4392                                                                      4.1, 4.1.1,
                                                   and Other Related Matters
                                                                                   4.1.2, 4.1.3,
                                                                                   4.2, 5.1, 5.2,

                                             114                      DBOD-MC On IRAC Norms-2014
                                                                                    5.3, 5.4

111. DBOD.No.BP.BC.42/C.469       31.10.90                                          3.1.1
                                                   Classification of Non
     (W)90
                                                   Performing Loans
112. DBOD.No.Fol.BC.136/C.249     07.11.85         Credit Monitoring System -       1.3
     85                                            Introduction of Health
                                                   Code for Borrowal
                                                   Accounts in Banks
113. DBOD.No.BP.BC.35/21.01.0                      Monetary & Credit
                                  24.04.99                                          4.2
     02/99                                         Policy Measures

114.
       DBOD.No.FSC.BC.18/24.01.   19.02.94         Equipment Leasing,               2.1, 3.2.3
       001/ 9394                                   Hire Purchase,
                                                   Factoring, etc. Activities




                                             115                       DBOD-MC On IRAC Norms-2014

 
 
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