Notes from Dr. Borkosky

(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. CDR Empowered Group will meet on two or three occasions in respect of each borrowal account. 5.9.9 Excess Provisions on sale of Standard Asset / NPAs. 2001­-02, DBOD No.BP.BC.98/ 21.04.048/2000­-2001, DBOD No.BP.BC.40/ 21.04.048/2000­-2001, Income Recognition, Asset Classification and Provisioning ­Reporting of NPAs to RBI. As and when the asset is taken-­over by the taking­-over institution, the corresponding provisions could be reversed.

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. This will apply to Government guaranteed accounts also. 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. Apart from CDR Mechanism, there exists a much simpler mechanism for restructuring of loans availed by Small and Medium Enterprises (SMEs). 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. 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.

Therefore, such amounts of interest do not become overdue and hence do not become NPA, with reference to the date of debit of interest. 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. (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. 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. 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. 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; Transfer of the promoters’ holdings to a security trustee or an escrow arrangement till turnaround of company. 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. 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.

para 2 of the covering letter to the circular), List of Circulars consolidated by the Master Circular on IRAC Norms, Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances - Projects under Implementation, Prudential Norms for Conversion of Unpaid Interest into (iii) Where the purchase/sale does not satisfy any of the prudential 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. 5 NASOPHARYNGEAL. Banks have been advised by IBA in this regard vide its circular No. 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.

Hence, a second category of CDR is introduced for cases 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. Welcome to the refurbished site of the Reserve Bank of India.

Banks may frame different sets of policies for borrowers belonging to different sectors within the SME if they so desire. 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 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). In paediatric practice it is also taught that an appropriate NPA will blanch the nares. The JLF may also consider providing need based additional finance to the borrower, if considered necessary, as part of the rectification process. This will apply to Government guaranteed accounts also. Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalising Distressed Assets in the Economy, Part – C1

5.5.1 As stated in para 5.4.1 a creditor (outside the minimum 75 per cent and 60 per cent) who for any internal reason does not wish to commit additional finance will have an option. (iv) Export credit for exporting their own farm produce. However, large value BIFR cases may be eligible for restructuring under the CDR system if specifically recommended by the CDR Core Group. The borrower reporting stress in the business and financials. Provisioning pertaining to Advances - Computation of NPA Levels, Prudential Treatment in respect of Floating Provisions, Prudential Norms on Unsecured Advances, Prudential Guidelines on Restructuring of Advances, Prudential Treatment in respect of Floating Provisions, Prudential guidelines on Restructuring of Advances, Prudential Treatment of different Types of Provisions in respect of Loan Portfolios, Review of Prudential Norms - Provisioning for Standard Assets and Risk Weights for Exposures to Corporates, Commercial Real Estate and NBFC-ND-SI, Asset Classification Norms for Infrastructure Projects under Implementation, Prudential Norms for Off-Balance Sheet Exposures of Banks, (i) Disbursal of Loans against Sanctioned Limits (ii) Restructuring of Dues of the Small and Medium Enterprises (SMEs), Prudential Norms for Off-balance Sheet Exposures of Banks, 2.1.2 (vii), 4.2.7 (iv) to 4.2.7 (vii), Prudential guidelines on Restructuring of Advances-comprehensive guidelines, Prudential Norms on Asset Classification Pertaining to Advances - 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. 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. 12.1.6 BIFR cases are not eligible for restructuring without their express approval. 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. 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. 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. b. The details of the institutional / organizational framework for CDR Mechanism and SME Debt Restructuring Mechanism are given in Annex - 4. 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. They become overdue after due date for payment of interest, if uncollected. Accordingly guidelines on sale/purchase of non­performing assets have been formulated and furnished below. 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.

However, the cases referred to CDR Cell by JLF will have to be finally decided by the CDR EG within the next 30 days. This will provide an opportunity 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. 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.

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