1 / 36

INCOME RECOGNITION, ASSET CLASSIFICATION, AND PROVISIONING S Dwivedi

INCOME RECOGNITION, ASSET CLASSIFICATION, AND PROVISIONING S Dwivedi. ALL BANKS IRRESPECTIVE OF SIZE OF BRANCH “ONE SIZE FITS ALL” PRINCIPLE. NORMS ARE WITH 90 DAYS DELINQUENCY. IRAC NORMS & PROVISIONING WHY?. In line with international best practices.

bandele
Download Presentation

INCOME RECOGNITION, ASSET CLASSIFICATION, AND PROVISIONING S Dwivedi

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. INCOME RECOGNITION, ASSET CLASSIFICATION, AND PROVISIONINGS Dwivedi

  2. ALL BANKS IRRESPECTIVE OF SIZE OF BRANCH “ONE SIZE FITS ALL” PRINCIPLE NORMS ARE WITH 90 DAYS DELINQUENCY

  3. IRAC NORMS & PROVISIONINGWHY? • In line with international best practices. • As per Narsimham committee recommendations. • In a phased manner • Greater consistency and transparency in published books of accounts of banks. • To improve intrinsic health of banks

  4. DEFINATION OF NON PERFORMING ASSET [ NPA ] and IMPORTANT TERMINOLOGIES NPA : An Asset becomes Non Performing when it ceases to generate income OVERDUE : Any amount due under any credit facility if not paid by the due date fixed by the bank becomes overdue OUT OF ORDER : An account should be treated as Out of Order if the outstanding balance remains continuously in excess of the sanctioned limit/ drawing power or if there are no credits for specified number of days or credits are not enough to cover the interest debited during the same period

  5. NPA : ADVANCES

  6. NPA : TERM LOAN ACCOUNTS Account Status NPA IF Interest or Instalment is overdue for 90 days Term Loan Account of XYZ In the above example Borrower has not paid the interest which was charged on Dec. 31 2010 amounting to Rs. 50.00 and the same was overdue for 90 days hence this account shall be categorised as NPA as on 31st March 2011. Thus all accounts disbursed after 1st Jan of the financial year can never be NPA.

  7. AGRICULTURAL ADVANCES LONG DURATION SHORT DURATION NPA IF NPA IF Installment or Interest remains overdue for two crop seasons Installment or Interest remains overdue for one crop seasons Where natural calamity has impaired the repaying capacity and the crop loan is converted into Term Loan or Term Loan is rescheduled, Term Loan or fresh short term loan may be treated as current dues and need not be classified as NPA.

  8. WHAT IS SHORT TERM CROP AND LONG DURATION CROP? • “LONG DURATION CROP MEANS CROP WITH CROP SEASON LONGER THAN ONE YEAR AND CROPS WHICH ARE NOT LONG DURATION CROPS WOULD BE TREATED AS SHORT DURATION CROP”.

  9. AGRICULTURAL REVISED NORMS…. • REVISED NORMS ARE APPLICABLE TO DIRECT AGRICULTURAL ADVANCES AND NOT ALLIED AGRI. ACTIVITIES LIKE DAIRY, POULTRY, FISHERY, PIGGERY, ETC.

  10. AGRI ADVANCE- NPA STATUS • CROP LOAN GRANTED IN JUNE 2008 • REPAYMENT DUE DATE 31Mar 2009 • AMOUNT NOT PAID ON DUE DATE • STATUS OF A/C ON 31 MAR. 09: STANDARD • STATUS OF A/C ON 31 MAR. 10: STANDARD • STATUS OF A/C ON 31 MAR .11 SUB-STND • DATE OF NPA WILL BE 31 JAN 2011

  11. Illustration :NPA Agri.

  12. Illustration :NPA Agri…

  13. Illustration :NPA Agri..

  14. Illustration :NPA Agri..

  15. Illustration :NPA Agri..

  16. Illustration :NPA Agri..

  17. NPA : OVERDRAFT AND CASH CREDIT LIMITS Account Status NPA IF Overdrawn beyond sanctioned limit

  18. NPA : OVERDRAFT AND CASH CREDIT LIMITS Account Status NPA IF Overdrawn beyond Drawing Power

  19. NPA : OVERDRAFT AND CASH CREDIT LIMITS Account Status NPA IF Insufficient Credits in to the Account

  20. NPA : OVERDRAFT AND CASH CREDIT LIMITS Account Status NPA IF No Credits in to the Account

  21. NPA : OVERDRAFT AND CASH CREDIT LIMITS Account Status NPA IF Non renewal of OD/CC account for 180 days OD facility was availed on 01.10.08 Secured by mortgage of Property worth Rs. 100 lacs. Limit was valid upto 30.09.09 The operations were good with no irregularity But the limit was not renewed The account should be treated as NPA as the limit was not renewed within180 days

  22. NPA : OVERDRAFT AND CASH CREDIT LIMITS Account Status NPA IF Drawing power is fixed on the basis of old stock statements

  23. NPA : OVERDRAFT AND CASH CREDIT LIMITS Account Status NPA OR STANDARD ? NON PERFORMING ASSET If BG/LC is devolved and Balance in OD along with balance of devolved LC is more than the sanctioned limit of Rs. 30.00 lacs

  24. CLASSIFICATION OF ASSET

  25. EROSIONIN THE VALUE OF SECURITY • An NPA need not go through the various stages of classification in cases of serious credit impairment. • If the realisable value of the security is <50% such NPAs may be classified as DOUBTFUL directly. • If the realisable value of security is <10%, then the account should be straight way classified as LOSS ASSET.

  26. REPAYMENT WITH MORATORIUM PERIOD • Where moratorium period is available for payment of interest, payment of intt. becomes ‘due’ only after the moratorium is over. • So non-payment of intt.during moratorium does not make account NPA.

  27. PROVISIONING NORMS - BANKS STANDARD ASSETS

  28. PROVISIONING NORMS - BANKS SUB - STANDARD ASSETS

  29. PROVISIONING NORMS - BANKS DOUBTFUL ASSETS All Entities

  30. PROVISIONING NORMS - BANKS LOSS ASSETS

  31. Income Recognition • Income Recognition Policy - Based on objective criteria and on the record of recovery - Income from NPAs is not recognized on accrual basis but only when actually received - Banks should not charge and take to Income account interest on any NPA

  32. Income Recognition • Income Recognition Policy -Fees / Commissions earned due to renegotiations/rescheduling to be recognized on accrual basis - Interest on Govt. guaranteed advances not to be taken unless interest realized - Accrued interest on investments may be taken to P&L A/c till maturity. However, it is to be provided for fully, if interest is not realized on due date / date of maturity

  33. Income Recognition • Reversal of Income - If any account becomes NPA, the entire interest accrued and credited to income account in the past periods should be reversed if the same is not realised. Applies to Government guaranteed accounts also - Fees, commission and similar income that have accrued should cease to accrue and past dues if uncollected to be reversed

  34. Income Recognition • Appropriation of recovery in NPA - Interest realized on NPAs may be taken to income account provided credits are not out of fresh / additional credit facilities - In the absence of a clear agreement banks to exercise right of appropriation of recoveries in a uniform and consistent manner

  35. Income Recognition • Interest application - Reversal of interest already charged but not collected by debiting Profit and Loss A/c and stop further application of interest - Banks may continue to record accrued interest in a Memorandum Account

  36. Thank You

More Related