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This master circular consolidates instructions on income recognition, asset classification, and provisioning for urban co-operative banks. Urban co-operative banks must classify loans as non-performing assets when payments remain overdue for more than ninety days. Banks need to apply these prudential norms continuously and establish system-based asset classification within specified timelines based on asset size. Banks must maintain provisions for standard, sub-standard, doubtful, and loss assets according to prescribed rates. The circular also sets rules for credit card accounts, agricultural advances, project financing, and loan restructuring.
What you must do
Key dates
Who is affected
Thresholds
Exceptions
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RBI/2023-24/26 DOR.STR.REC.14/21.04.048/2023-24 May 08, 2023 The Chief Executive Officers All Primary (Urban) Co-operative Banks Madam / Dear Sir, Master Circular - Income Recognition, Asset Classification, Provisioning and Other Related Matters - UCBs Please refer to our Master Circular DOR.STR.REC.5/21.04.048/2022-23 dated April 1, 2022 on the captioned subject. The enclosed Master Circular consolidates and updates all the instructions / guidelines on the subject issued till date as listed in the Annex 9 . Yours faithfully (Manoranjan Mishra) Chief General Manager Encl: As above Master Circular Income Recognition, Asset Classification, Provisioning and Other Related Matters Contents Sl No Particulars
1.1 In order to reflect a bank's actual financial health in its balance sheet and as per the recommendations made by the Committee on Financial System (Chairman Shri M. Narasimham), the Reserve Bank has introduced, in a phased manner, prudential norms for income recognition, asset classification and provisioning for the advances portfolio of the banks.
1.2 Broadly, 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. The provisioning should generally be made on the basis of the classification of assets into different categories.
1.3 The requirements of the State Co-operative Societies Acts and / or rules made thereunder or other statutory enactments may continue to be followed, if they are more stringent than those prescribed hereby.
2.1.1 A non-performing asset is a loan or an advance where:
2.1.2 (A) The exact due dates for repayment of a loan, frequency of repayment, breakup between principal and interest, examples of SMA/NPA classification dates, etc. should be clearly specified in the loan agreement and the borrower should be apprised of the same at the time of loan sanction and also at the time of subsequent changes, if any, to the sanction terms/loan agreement till full repayment of the loan.
2.1.2 (B) Credit Card Accounts
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.
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 payment due date mentioned in the statement.
Banks shall report a credit card account as ‘past due’ to credit information companies (CICs) or levy penal charges, viz. late payment charges, etc., if any, only when a credit card account remains ‘past due’ for more than three days. The number of ‘days past due’ and late payment charges shall, however, be computed from the payment due date mentioned in the credit card statement.
(i) In respect of all direct agricultural advances, as specified in Annex 1:
(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 by him.
(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.
(i) The system should ensure that identification of NPAs is done on an on-going basis and accounts are classified as NPA immediately, as soon as they turn into NPA as per the guidelines contained in this circular, without waiting till the end of quarter/financial year. 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.
