ACCOUNTING
This query is : Resolved
12 October 2007
can anyone tell me whats the current provisions for NPA PROVISIONS on various advances advanced in accounting for banks and relevant provisions relating to november pe2 2007 exams?
Thnx,
mukesh agarwal
Thnx,
mukesh agarwal
13 October 2007
NON-PERFORMING ASSETS (NPA)
-Classification of Assets as Non-Performing
--An asset becomes non-performing when it ceases to generate income for the
bank. Earlier an asset was considered as non-performing asset (NPA) based on the
concept of 'Past Due'. A ‘non performing asset’ (NPA) was defined as credit in respect
of which interest and/ or installment of principal has remained ‘past due’ for a specific
period of time. The specific period was reduced in a phased manner as under:
7
Year ended March, 31 Specific period
------------------------------ ---------------------
1993 4 quarters
1994 3 quarters
1995 2quarters
An amount is considered as past due, when it remains outstanding for 30 days beyond
the due date. However, with effect from March 31, 2001 the ‘past due’ concept has
been dispensed with and the period is reckoned from the due date of payment.
-- With a view to moving towards international best practices and to ensure
greater transparency, '90 days' overdue* norms for identification of NPAs have been
made applicable from the year ended March 31, 2004. As such, save and except certain
relaxations mentioned at para 2.1.3 and 2.1.4 below, with effect from March 31, 2004,
a non-performing asset shall be a loan or an advance where:
(i) Interest and/or installment 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'@ for a period of more than 90 days, 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) In the case of direct agricultural advances as listed in Annex 1, the overdue norm
specified at para 2.1.5 would be applicable. In respect of agricultural loans, other than
those specified in Annex 1, identification of NPAs would be done on the same basis as
non-agricultural advances.
(v) Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.
* Any amount due to the bank under any credit facility, if not paid by the due date fixed
by the bank becomes overdue.
@ “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 or credits are not
enough to cover the interest debited during the same period, these accounts should be
treated as 'out of order'”.
8
-- Tier I Bank ( Unit banks i.e. banks having a single branch/ HO with deposits
upto Rs. 100 crore and banks having multiple branches within a single district with
deposits upto Rs. 100 crore) have been permitted to classify loan accounts including
gold loans and small loan upto Rs 1 lakh as NPAs based on 180 days delinquency
norm instead of the extant 90 days norm. This relaxation will be in force upto March 31,
2008. The deposit base of Rs. 100 crore for the above will be determined on the basis
of average of the fortnightly Net Demand and Time Liabilities in the financial year
concerned. For the above category of banks, an account would be classified as Non
Performing Asset if the :
(i) Interest and/or installment of principal remain overdue for a period of more
than 180 days in respect of a Term Loan.
(ii) The account remains 'Out of order' for a period of more than 180 days, in
respect of an Overdraft/Cash Credit (OD/CC).
(iii) The bill remains overdue for a period of more than 180 days, in the case of
bills purchased and discounted.
(iv) Any amount to be received remains overdue for a period of more than 180
days in respect of other accounts.
The relaxations are given for the explicit purpose of enabling the UCBs concerned to
transit to the 90 day NPA norm in the year 2008-09 by building up adequate provisions
and strengthening their appraisal, disbursement and post disbursement procedures.
-- Tier II bank (all UCBs other than those referred to at para 2.1.3 ) shall classify
their loan accounts as NPA as per 90 day norm as hitherto.
Note : A comparative analysis of the prudential norms as applicable for Tier I and Tier II
banks are given in the Annex 4.
-- Agricultural Advance:
(i) With effect from September 30, 2004 the following revised norms are applicable to
all direct agricultural advances (as listed in the Annex 1):
a) A loan granted for short duration crops will be treated as NPA, if the
installment of principal or interest thereon remains overdue for two crop seasons.
9
b) A loan granted for long duration crops will be treated as NPA, if the
installment of principal or interest thereon remains overdue for one crop season.
(ii) 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.
(iii) 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.
(iv) 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. In
respect of agricultural loans, other than those specified in the Annex 1 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.
(v) Banks should ensure that while granting loans and advances, realistic
repayment schedules are fixed on the basis of cash flows / fluidity with the
borrowers.
-- Identification of assets as NPAs should be done on an ongoing basis
The system should ensure that identification of NPAs is done on an on-going
basis and 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 prescribed norms. Banks should also make provisions for
NPAs as at the end of each calendar quarter i.e as at the end of March/ June/
September/ December, so that the income and expenditure account for the respective
quarters as well as the P&L account and balance sheet for the year end reflects the
provision made for NPAs.
-- Charging of interest at monthly rests
(i) Banks should charge interest at monthly rests in the context of adoption of 90
days norm for recognition of loan impairment w.e.f. from the year ended March 31,
2004 and consequential need for close monitoring of borrowers' accounts. However, the
date of classification of an advance as NPA as stated in preceding paras, should not be
changed on account of charging of interest at monthly basis.
10
(ii) The existing practice of charging/compounding of interest on agricultural
advances would be linked to crop seasons and the instructions regarding charging of
interest on monthly rests shall not be applicable to agricultural advances.
(iii) While compounding interest at monthly rests effective from April 1, 2003 banks
should ensure that in respect of advances where administered interest rates are
applicable, they should re-align the rates suitably keeping in view the minimum lending
rate charged by the bank (in view of the freedom given to them for fixing lending rates)
so that they comply with the same. In all other cases also, banks should ensure that the
effective rate does not go up merely on account of the switchover to the system of
charging interest on monthly rests.
(iv) Banks should take into consideration due date/s fixed on the basis of fluidity with
borrowers and harvesting/ marketing season while charging interest and compound the
same if the loan/ installment becomes overdue in respect of short duration crops and
allied agricultural activities.
-Classification of Assets as Non-Performing
--An asset becomes non-performing when it ceases to generate income for the
bank. Earlier an asset was considered as non-performing asset (NPA) based on the
concept of 'Past Due'. A ‘non performing asset’ (NPA) was defined as credit in respect
of which interest and/ or installment of principal has remained ‘past due’ for a specific
period of time. The specific period was reduced in a phased manner as under:
7
Year ended March, 31 Specific period
------------------------------ ---------------------
1993 4 quarters
1994 3 quarters
1995 2quarters
An amount is considered as past due, when it remains outstanding for 30 days beyond
the due date. However, with effect from March 31, 2001 the ‘past due’ concept has
been dispensed with and the period is reckoned from the due date of payment.
-- With a view to moving towards international best practices and to ensure
greater transparency, '90 days' overdue* norms for identification of NPAs have been
made applicable from the year ended March 31, 2004. As such, save and except certain
relaxations mentioned at para 2.1.3 and 2.1.4 below, with effect from March 31, 2004,
a non-performing asset shall be a loan or an advance where:
(i) Interest and/or installment 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'@ for a period of more than 90 days, 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) In the case of direct agricultural advances as listed in Annex 1, the overdue norm
specified at para 2.1.5 would be applicable. In respect of agricultural loans, other than
those specified in Annex 1, identification of NPAs would be done on the same basis as
non-agricultural advances.
(v) Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.
* Any amount due to the bank under any credit facility, if not paid by the due date fixed
by the bank becomes overdue.
@ “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 or credits are not
enough to cover the interest debited during the same period, these accounts should be
treated as 'out of order'”.
8
-- Tier I Bank ( Unit banks i.e. banks having a single branch/ HO with deposits
upto Rs. 100 crore and banks having multiple branches within a single district with
deposits upto Rs. 100 crore) have been permitted to classify loan accounts including
gold loans and small loan upto Rs 1 lakh as NPAs based on 180 days delinquency
norm instead of the extant 90 days norm. This relaxation will be in force upto March 31,
2008. The deposit base of Rs. 100 crore for the above will be determined on the basis
of average of the fortnightly Net Demand and Time Liabilities in the financial year
concerned. For the above category of banks, an account would be classified as Non
Performing Asset if the :
(i) Interest and/or installment of principal remain overdue for a period of more
than 180 days in respect of a Term Loan.
(ii) The account remains 'Out of order' for a period of more than 180 days, in
respect of an Overdraft/Cash Credit (OD/CC).
(iii) The bill remains overdue for a period of more than 180 days, in the case of
bills purchased and discounted.
(iv) Any amount to be received remains overdue for a period of more than 180
days in respect of other accounts.
The relaxations are given for the explicit purpose of enabling the UCBs concerned to
transit to the 90 day NPA norm in the year 2008-09 by building up adequate provisions
and strengthening their appraisal, disbursement and post disbursement procedures.
-- Tier II bank (all UCBs other than those referred to at para 2.1.3 ) shall classify
their loan accounts as NPA as per 90 day norm as hitherto.
Note : A comparative analysis of the prudential norms as applicable for Tier I and Tier II
banks are given in the Annex 4.
-- Agricultural Advance:
(i) With effect from September 30, 2004 the following revised norms are applicable to
all direct agricultural advances (as listed in the Annex 1):
a) A loan granted for short duration crops will be treated as NPA, if the
installment of principal or interest thereon remains overdue for two crop seasons.
9
b) A loan granted for long duration crops will be treated as NPA, if the
installment of principal or interest thereon remains overdue for one crop season.
(ii) 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.
(iii) 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.
(iv) 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. In
respect of agricultural loans, other than those specified in the Annex 1 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.
(v) Banks should ensure that while granting loans and advances, realistic
repayment schedules are fixed on the basis of cash flows / fluidity with the
borrowers.
-- Identification of assets as NPAs should be done on an ongoing basis
The system should ensure that identification of NPAs is done on an on-going
basis and 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 prescribed norms. Banks should also make provisions for
NPAs as at the end of each calendar quarter i.e as at the end of March/ June/
September/ December, so that the income and expenditure account for the respective
quarters as well as the P&L account and balance sheet for the year end reflects the
provision made for NPAs.
-- Charging of interest at monthly rests
(i) Banks should charge interest at monthly rests in the context of adoption of 90
days norm for recognition of loan impairment w.e.f. from the year ended March 31,
2004 and consequential need for close monitoring of borrowers' accounts. However, the
date of classification of an advance as NPA as stated in preceding paras, should not be
changed on account of charging of interest at monthly basis.
10
(ii) The existing practice of charging/compounding of interest on agricultural
advances would be linked to crop seasons and the instructions regarding charging of
interest on monthly rests shall not be applicable to agricultural advances.
(iii) While compounding interest at monthly rests effective from April 1, 2003 banks
should ensure that in respect of advances where administered interest rates are
applicable, they should re-align the rates suitably keeping in view the minimum lending
rate charged by the bank (in view of the freedom given to them for fixing lending rates)
so that they comply with the same. In all other cases also, banks should ensure that the
effective rate does not go up merely on account of the switchover to the system of
charging interest on monthly rests.
(iv) Banks should take into consideration due date/s fixed on the basis of fluidity with
borrowers and harvesting/ marketing season while charging interest and compound the
same if the loan/ installment becomes overdue in respect of short duration crops and
allied agricultural activities.
13 October 2007
You may download the file Income recognition and Assets classification for banks uploaded today by me...
13 October 2007
thank u , but can u tell me the provisions i.e. the % of amounts to be apportioned as provisions for NPA..
31 October 2007
Our exper Mr. Dashrath Maheshwari has explained very nicely. If you want to classify then classify assets as Standard Assets, Sub-Standard Assets, Doubtful Assets and Bad Assets.
09 November 2007
Thanks for the inputs
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Is this income indian or foreign income?
- REGARDING GST ON COMMERICIAL PROPERTY
- 15ca /15cb whose income tax login? remitter or nri seller's login?
- TDS U/S. 194NF
- ITC temporary reversal and reclaim
- RCM applicability on Rent Paid by Registered Person to Unregistered Landlord for Residental Building
- GST on export of services and Input Credit
- Regarding Documentation & Compliances for Opening of Unit of Pvt Ltd.
- Applicable TDS rate for sale of property in Nov 2024
- REGARDING 25 AS DATE OF PAYMENT AND DATE OF BOOKING
- MIS MATCH OF INVOICE NUMBER
- VERIFICATION OF REFUND RELATED
- GST Regis.
- ITC c/f from FY2022-23 to FY2023-24 entered the same in table 8C of GSTR9 of FY 2022-23, in FY23-24
- Late filling fees Demand by gst office
- IGST Credit-Show cause notice issued-confusion
- Short and Excess provision of expenses
- Issue of gst e invoice
- Interchangeable words in accounts
- Adjusted profit/Loss in the case of LLP and Pvt. Ltd.company
Trending Online Classes
CAclubindia
