PRUDENTIAL NORMS

APPLICABLE TO
COOPERATIVE BANKS
SESSION OBJECTIVES
TO ENABLE PARTICIPANTS TO
UNDERSTAND PRUDENTIAL NORMS

TO ENABLE TO CLASSIFY ASSETS AS PER

NORMS

TO ENABLE TO MAKE PROVISIONING

TO UNDERSTAND ABOUT C R A R

WHY PRUDENTIAL NORMS ?
BALANCE SHEET SHOULD REFLECT A
BANK’S ACTUAL FINANCIAL POSITION
A PROPER SYSTEM FOR RECOGNITION OF
INCOME, CLASSIFICATION OF ASSETS AND
PROVISIONING FOR BAD DEBT ON
PRUDENTIAL BASIS IS NECESSARY
INCOME RECOGNITION SHOULD BE
OBJECTIVE RATHER THAN SUBJECTIVE &
BASED ON ACTUAL RECOVERY
( NARASIMHAM COMMITTEE)
UNIFORM APPLICATION OF THE RULES
 THE PRUDENTIAL NORMS
COMPRISE:-

- INCOME RECOGNITION
- ASSETS CLASSIFICATION
- PROVISIONING NORMS
- CAPITAL ADEQUACY

THE APPLICATION OF NORMS TO COOP BANKS WAS 1996-

97 FOR S.T. STRUCTURE AND 1997-98 FOR L.T. STRUCTURE
WHAT IS A NON - PERFORMING
ASSET ?
“ AN ASSET WHICH CEASES TO
GENERATE INCOME FOR A BANK”
 N . P. A SHOULD BE :
-

 INTEREST AND / OR INSTALMENT OF PRINCIPAL

REMAIN OVERDUE FOR A PERIOD OF MORE THAN 90
DAYS IN RESPECT OF THE TERM LOAN.

>THE ACCOUNT REMAINS OUT OF ORDER FOR A PERIOD

OF MORE THAN 90 DAYS IN RESPECT OF OVERDRAFT /
CASH CREDIT.

>THE BILL REMAINS OVERDUE FOR A PERIOD OF MORE

THAN 90 DAYS IN THE CASE OF BILLS PURCHASED /
DISCOUNTED.
> INTEREST AND / OR INSTALMENT OF PRINCIPAL
REMAIN OVERDUE FOR TWO HARVEST SEASONS BUT
FOR A PERIOD NOT EXCEEDING TWO HALF YEARS IN CASE
OF ADVANCES GRANTED FOR AGRICULTURE PURPOSE
( short duration crops )

> INTEREST AND / OR INSTALMENT OF PRINCIPAL

REMAIN OVERDUE FOR ONE HARVEST SEASONS BUT FOR
A PERIOD NOT EXCEEDING TWO HALF YEARS IN CASE OF
ADVANCES GRANTED FOR AGRICULTURE PURPOSE
(Long duration crops - Crops with one year and
above duration)
 - ANY AMOUNT TO BE
RECEIVED REMAINS OVERDUE
FOR A PERIOD OF 90 DAYS IN
RESPECT OF OTHER
ACCOUNTS

THE ACCOUNT SHOULD BE IN DEFAULT

FOR A STIPULATED PERIOD FOR THE
PURPOSE OF RECKONING THE CREDIT
FACILITIES AS P. A. OR N.P.A.
  WHERE MORATORIUM OR
GESTATION PERIOD IS GIVEN ,
THE ACCOUNT IS N.P.A IF THE
INSTALMENT IS NOT PAID ON
DUE DATE

 IN CASE OF HOUSING LOANS AND SIMILAR

LOANS GIVEN TO STAFF WHERE INTEREST IS
REPAYABLE AFTER RECOVERY OF PRINCIPAL,
THE ACCOUNT IS N.P.A. IF DEFAULT IN
REPAYMENT OF PRINCIPAL ON DUE DATE.
  CONSORTIUM ADVANCES WILL
BE IDENTIFIED AS N.P.A. OR
OTHERWISE AS PER THE
BEHAVIOUR OF THE ACCOUNT IN
THE BOOKS OF THE BANK
 MULTIPLE CREDIT FACILITIES :-
IF ONE FACILITY IS N.P.A. ALL OTHER CREDIT
FACILITIES WILL BE N.P.A. IN CASE OF DIRECT
LENDING.
ONE N.P.A. DOES NOT AFFECT OTHERS IN
CASE OF ON LENDING.
 IN CASE OF STATE GOVT. GUARANTEE
ADVANCES AND INVESTMENTS
THE REQUIREMENT OF INVOCATION OF
GUARANTEE DELINKED FOR ASSET
CLASSIFICATION

WOULD ATTRACT ASSET CLASSIFICAITON AND

PROVISIONING NORMS IF INTEREST AND / OR
PRINCIPAL OR ANY OTHER AMOUNT DUE TO
THE BANK OVER DUE FOR MORE THAN 90 DAYS.
WHAT IS OUT OF ORDER ?
 IF OUTSTANDING IS IN EXCESS OF
SANCTION LIMIT OR DRAWING POWER
CONTINUOUSLY FOR 90 DAYS AS ON THE
BALANCE SHEET DATE

 NO CREDITS IN THE ACCOUNT

CONTINUOUSLY FOR THE LAST 90 DAYS
PRECEEDING TO THE DATE OF BALANCE SHEET
DATE, OR CREDITS IF ANY, ARE NOT
SUFFICIENT TO COVER THE INTEREST
DEBITTED DURING THE PERIOD
 INCOME RECOGNITION
 INCOME ON ACCRUAL BASIS NOT TO BE TAKEN
TO INCOME ACCOUNT.
IF TAKEN
MATCHING PROVISION TO BE MADE

 ONLY CASH RECOVERIES OF INTEREST AND

OTHER CHARGES ARE TO BE TAKEN INTO INCOME
ACCOUNT.
ASSET CLASSIFICATION
ASSETS ARE CLASSIFIED INTO FOUR
CATEGORIES BASED ON CRITERIA.
 STANDARD ASSETS
 SUB - STANDARD ASSETS
 DOUBTFUL ASSETS
 LOSS ASSETS
STANDARD ASSETS ARE THOSE ACCOUNTS
WHICH DO NOT DISCLOSE ANY PROBLEM AND
WHICH ARE NOT N.P.A.
SUB-STANDARD ASSETS ARE THOSE ACCOUNTS
WHICH ARE OVERDUE FOR NOT EXCEEDING
3 YEARS.
DOUBTFUL ASSETS ARE THOSE ACCOUNTS
WHICH ARE OVERDUE FOR MORE THAN 3 YEARS
LOSS ASSETS ARE THOSE ACCOUNTS WHICH
ARE CONSIDERED AS LOSS ACCOUNT BY THE
BANK, INTERNAL/EXTERNAL AUDITORS OR
R.B.I./ NABARD INSPECTORS.
LOSS ASSETS ARE THOSE ACCOUNTS IN
RESPECT OF WHICH
- DECREE OR EXECUTION PETITION TIME
BARRED
- DOCUMENTS LOST - CANNOT BE
RENEWED - NO LEGAL PROOF
- BORROWER / SURETIES INSOLVENT

- BORROWER NOT TRACEABLE - LEFT THE

AREA OF OPERATION - DIED LEAVING NO
TANGIBLE ASSETS
- FICTICIOUS AND BENAMI LOANS
-LOANS DUE FROM LIQUIDATED SOCIETIES

- ASSETS FINANCED ARE TOTALLY

DISTROYED AND BORROWER HAS NO
OTHER MEANS TO REPAY THE LOANS

-TITLE TO THE SECURITY IS DEFECTIVE -

CANNOT BE LEGALLY PROCEEDED
AGAINST.
- LOAN LIABILITY DISPUTED
-LOANS BECOME INFRUCTUOUS -
SUBSIDIES AND COMPENSATION NOT
ADEQUATE
PROVISIONING NORMS
-STANDARD ASSET 0.25 %
0.40%
- SUB- STANDARD ASSET 10.0 %
- DOUBTFUL ASSET
CATEGORY - I
OVERDUE BETWEEN 3 - 4 YEARS
100% FOR UN-SECURED PORTION +
20% SECURED PORTION
 CATEGORY - II

OVERDUE BETWEEN 4- 6 YEARS

100% FOR UN-SECURED PORTION +
30% SECURED PORTION

CATEGORY - III

OVERDUE EXCEEDING 6 YEARS

100% FOR SECURED AND UN-
SECURED LOANS
 LOSS ASSET- WRITE
OFF OR 100% PROVISIONING.
Any questions