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VIPUL K. CHOKSI , FCA

IRAC NORMS

Rajkot Branch of WIRC of ICAI

22 nd MARCH 2013

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Vipul K. Choksi FCA

A!"nd#A!"nd#ObjectivesImportant CircularsIdentifcation o Account as NPAExceptions / ClarifcationsProjects under ImplementationAsset Classifcation and Provisioninguidelines on !estructuring oAdvancesAgricultural "ebt #aiver $c%eme$ome issues

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Vipul K. Choksi FCA

R)I Ci*&ul#* R"+"*"n&"R)I Ci*&ul#* R"+"*"n&"

aster Circular dated - nd .ul+ - 0- onI!AC Norms)

1"ivided in t%ree parts2

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Vipul K. Choksi FCA

Ass"' ,-p"Ass"' ,-p"

$&AN"A!" A$$E& / PE!3O! IN A$$E& &%e account is not non*per orming and does notcarr+ more t%an t%e normal ris' attac%ed to t%ebusiness)

NON*PE!3O! IN A$$E& 1NPA2 &%e asset ceases to generate income or t%eban')4ig%er ris' t%an normal ris' attac%ed tobusiness)Non per orming as per various criteria orvarious t+pes o loans)

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Vipul K. Choksi FCA

Id"n'i 'ion o+ A&&oun' #sId"n'i 'ion o+ A&&oun' #sNPANPA

5oans or

Advance

Interest and/or installment

remains overdue or a periodo more t%an 6 da+s in respecto a term loan)

As p"* p#*# 2.1.3 #n

#&&oun' is &l#ssi "d #s NPAonl- i+ in'"*"s' du" #nd&h#*!"d du*in! #n- /u#*'"*is no' s"*(i&"d +ull- i'hin0 d#-s +*o 'h" "nd o+ 'h"/u#*'"*.

Exceptions 5oans (it% moratorium orpa+ment o interest )

4ousing 5oan or similaradvance to sta7)

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Vipul K. Choksi FCA

Id"n'i 'ion o+ A&&oun' #s NPAId"n'i 'ion o+ A&&oun' #s NPA......

8illsPurc%asedanddiscounted

8ill remains overdue or a"iscounted period o more t%an6 da+s)

AgriculturalAdvances

Interest or installment remainsoverdue or t(o crop seasons ors%ort duration crop, one cropseason or long duration crop)

"erivative &ransaction

Overdue receivables representingpositive mar' to mar'et value oa derivative contract remainingunpaid or a period o 6 da+srom specifed due date)

5i9uidit+ !emains outstanding or more

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Vipul K. Choksi FCA

Id"n'i 'ion o+ A&&oun' #sId"n'i 'ion o+ A&&oun' #sNPA ...NPA ...

C#sh C*"di' O("*d*#+'s Account remains:out o order; &%e account is treated as :out o order; i cient to coverinterest debited during t%e same period)

As p"* p#*# 2.1.3 #n #&&oun' is &l#ssi "d #s NPA onl-i+ in'"*"s' du" #nd &h#*!"d du*in! #n- /u#*'"* is no's"*(i&"d +ull- i'hin 0 d#-s +*o 'h" "nd o+ 'h"/u#*'"*

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Vipul K. Choksi FCA

45&"p'ions Cl#*i 'ions45&"p'ions Cl#*i 'ions

," po*#*- d" &i"n&-

Outstanding 8alance in account based ont%e dra(ing po(er calculated rom stoc'

statements older t%an ? mont%s (ould bedeemed as irregular @ i suc% irregulardra(ing are permitted or a period o 6da+s, account needs to be classifed as

NPA)Non*rene(al/ Non*regularisation o regular/

ad%oc limit (it%in 0 da+s rom t%e duedate)

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Vipul K. Choksi FCA

45&"p'ions Cl#*i 'ions ...45&"p'ions Cl#*i 'ions ...

Advances against term deposits,N$Cs, IBPs, BPs and 5i e InsurancePolicies need not be treated as NPAs,till securit+ cover is su>cient tocover outstanding balance)Income to be recognised subject toavailabilit+ o margin)Advance against gold ornaments /overnment securities not exempt)

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Vipul K. Choksi FCA

45&"p'ions Cl#*i 'ions 645&"p'ions Cl#*i 'ions 6

Soli'#*- C*"di' 4n'*-

Care s%ould be ta'en t%at a solitar+ or

e( credits in t%e account madeat/near t%e balance s%eet dateextinguis%ing t%e overdueinterest/principal is not t%e onl+ criteriaor classi +ing t%e asset as standard)

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Vipul K. Choksi FCA

45&"p'ions Cl#*i 'ions645&"p'ions Cl#*i 'ions6

R"!ul#*is#'ion o+ A&&oun'

Account need not be classifed as NPAi account %as been regularised b+ t%edate o 8alance s%eet b+ pa+ment ooverdue t%roug% genuine sources @not b+ sanction o additional acilit+ ortrans er o unds bet(een accounts)

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Vipul K. Choksi FCA

Cl#ssi 'ion7P*o%"&'s und"*Cl#ssi 'ion7P*o%"&'s und"*I pl" "n'#'ionI pl" "n'#'ion

Project 5oan (ould mean an+ term loan (%ic%%as been extended or t%e purpose o setting upo an economic venture) 8an's s%ould fx a "ateo Commencement o Commercial Operations

1"CCO2 or all project loans at t%e time osanction o t%e loan / fnancial closure)3or all projects fnanced b+ t%e 3Is/ ban's #+'"*28'h M#- 2002 , t%e date o completion o t%eproject s%ould be clearl+ spelt out at t%e time ofnancial closure o t%e project),h"s" #ss"' &l#ssi 'ion no* s ould #ppl- 'o'h" p*o%"&' lo#ns $"+o*" &o "n&" "n' o+&o "*&i#l op"*#'ions.

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Vipul K. Choksi FCA

In+*#s'*u&'u*" S"&'o*Classi + as NPA an+ time be orecommencement o commercial operations, iit is 6 da+s overdue unless restructuredand eligible to be classifed as standard)

Classi + as NPA i its ails to commencecommercial operations (it%in t(o +ears

rom t%e original "CCO, "("n i+ *"!ul#* #sp"* *"&o*d o+ *"&o("*- unlessrestructured and eligible to be classifed astandard)

Cl#ssi 'ion 7 P*o%"&'s und"*I pl" "n'#'ion6

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Vipul K. Choksi FCA

If a project loan classi ed as standard isrestructured any time during the period of two

years from original DCCO ,it can be retained asstandard, if fresh DCCO is xed within followinglimits

Court cases < anot%er t(o +ears be+ond t%e extendedperiod o t(o +earsOt%er reason< anot%er one +ear be+ond t%e extendedperiod o t(o +ears)

O'h"* &ondi'ions9 Application or restructuring s%ould be received be ore t%eexpir+ o period o t(o +ears rom original "CCO)I t%ere is a moratorium, ban' s%ould not recogniseincome be+ond t(o +ears rom original "CCO)8an' s%ould maintain necessar+ provision as long as t%eseare standard assets)

Cl#ssi 'ion 7 P*o%"&'s und"*I pl" "n'#'ion6

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Vipul K. Choksi FCA

Non In+*#s'*u&'u*" S"&'o*Classi + as NPA an+ time be orecommencement o commercial operations,i it is 6 da+s overdue unless restructuredand eligible to be classifed as standard)

Classi + as NPA i its ails to commencecommercial operations (it%in six mont%s

rom t%e original "CCO, "("n i+ *"!ul#* #sp"* *"&o*d o+ *"&o("*- unlessrestructured and eligible to be classifed astandard)

Cl#ssi 'ion 7 P*o%"&'s und"*I pl" "n'#'ion6

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Vipul K. Choksi FCA

If a project loan classi ed as standard is restructuredany time during the period of six months from originalDCCO ,it can be retained as standard, if fresh DCCO isxed within following limitsAnot%er one +ear be+ond t%e extended period o six

mont%s)

O'h"* &ondi'ions9Application or restructuring s%ould be received be oret%e expir+ o period o six mont%s rom original "CCO)I t%ere is a moratorium, ban' s%ould not recogniseincome be+ond six mont%s rom original "CCO)8an' s%ould maintain necessar+ provision as long ast%ese are standard assets)

Cl#ssi 'ion 7 P*o%"&'s und"*I pl" "n'#'ion6

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Vipul K. Choksi FCA

O'h"* Issu"s9 All other aspects of restructuring of project loans beforecommencement of commercial operations would be go ernedby !art " of #aster Circular An- &h#n!" in 'h" *"p#- "n' s&h"dul" o+ # p*o%"&' lo#n

du" 'o in&*"#s" in 'h" p*o%"&' ou'l#- ould no' $"'*"#'"d #s *"s'*u&'u*in! i+ 9 &%e increase in scope and siFe o t%e project ta'es placebe ore commencement o commercial operations o t%eexisting project)

&%e rise in cost excluding an+ cost*overrun in respect o t%e

original project is -GH or more o t%e original outla+) &%e ban' re*assesses t%e viabilit+ o t%e project be oreapproving t%e en%ancement o scope and fxing a res% "CCO)On re*rating, 1i alread+ rated2 t%e ne( rating is not belo( t%eprevious rating b+ more t%an one notc%)

Cl#ssi 'ion 7 P*o%"&'s und"*I pl" "n'#'ion6

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Vipul K. Choksi FCA

In&o " R"&o!ni'ionIn&o " R"&o!ni'ion

3or NPA accounts income s%ould be recognised onrealisation basis)#%en an account becomes non*per orming, unrealisedinterest o t%e previous periods s%ould be reversed orprovided)Interest income on additional fnance in NPA accounts%ould be recognised on cas% basis)In project loan, unding o interest in respect o NPA irecognised as income, s%ould be ull+ provided)

I interest due in respect o NPA is converted into e9uit+or an+ ot%er instrument, income recognised s%ould beull+ provided)

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Vipul K. Choksi FCA

In&o " R"&o!ni'ion6In&o " R"&o!ni'ion6

Adjustment o !ecoveries * !riority

nrealised Expenses

nrealised Interest

Amount o Principal Outstanding

Clarifcation vide aster Circular * in t%eabsence o clear agreement bet(een t%e 8an'and t%e 8orro(er, an appropriate polic+ to beollo(ed in uni orm and consistent manner)

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Vipul K. Choksi FCA

Cl#ssi 'ion No* sCl#ssi 'ion No* s

$tandard Asset &%e account is not non*per orming)

$ub*$tandard AssetA sub standard Asset is one (%ic% %as remainedNPA or a period o less t%an or e9ual to 0-mont%s)

5oss Assets

&%ese are accounts, identifed b+ t%e ban' orinternal or external auditors or b+ !8I Inspectors as(%oll+ irrecoverable but t%e amount or (%ic% %asnot been (ritten o7)

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Vipul K. Choksi FCA

45&"p'ions Cl#*i 'ions 645&"p'ions Cl#*i 'ions 6

S'*#i!h'# #- Cl#ssi 'ion

#%ere realisable value o securit+ is lesst%an G H o t%e value assessed, accountto be straig%ta(a+ classifed as "oubt ulAsset)

#%ere realisable value o securit+ is lesst%an 0 H o outstanding balance,account to be straig%ta(a+ classifed as5oss Asset)

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Vipul K. Choksi FCA

P*o(isionin! No* sP*o(isionin! No* s

S'#nd#*d Ass"'

Agricultural and $ Es $ectors )-GHCommercial !eal Estate 1C!E2 $ection 0H

Ot%ers )L H!estructured Assets and 4ousing 5oans -H

Su$7s'#nd#*d Ass"'

0GH o total outstanding-GH o total outstanding i loan is unsecured

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Vipul K. Choksi FCA

P*o(isionin! No* s6P*o(isionin! No* s6

:ou$'+ul Ass"'s9Period Provision 1$ecured M

nsecured2p to 0 +ear -GH M 0 H0to ? +ears L H M 0 Hore t%an ? +ears 0 H M 0 H

Loss Ass"'

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Vipul K. Choksi FCA

P*o(isionin! No* s 6P*o(isionin! No* s 6

V#lu#'ion o+ S"&u*i'i"s

In respect o NPAs (it% t%e balance o!s) G) crores @ above, ban' needs toormulate polic+ or annual stoc' audit b+external agencies @ in respect oimmovable properties, valuation to be

carried out once in ? +ears b+ approvedvaluer)

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Vipul K. Choksi FCA

P*o(isionin! No* sP*o(isionin! No* s

P*o(ision Und"* Sp"&i#l Ci*&u s'#n&"sAdvance under re%abilitation programmeapproved b+ 8I3! / Institutions, Provision s%ouldbe continued to be made on existing acilities)

Additional acilities no provision or a period oone +ear)

In case o advances guaranteed b+C &$I/EC C, Provision s%ould be made onl+ orbalance in excess o t%e amount guaranteed b+t%ese corporations)

d lid"li " R" '* &' *i !

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Vipul K. Choksi FCA

=uid"lin"s on R"s'*u&'u*in! o+=uid"lin"s on R"s'*u&'u*in! o+Ad(#n&"sAd(#n&"s

!estructuring divided in ollo(ing ourcategories