Page 37 - Banking Finance AUGUST 2015
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ARTICLE
that the account remains in order payments of principal and interest are made according to rescheduled terms
subsequently. to the satisfaction of the bank.
Hence, non-performing assets, need iii. Doubtful Assets: A doubtful assets is one which has remained in sub-standard
not be permanently non-performing category for a period exceeding 18 months. However w.e.f. March, 31, 2005
assets. It shall resume into performing an assets would be classified as doubtful if it remained in the sub-standard
assets, subject to the satisfaction of category for 12 months.
their norms at the discretion of banks.
iv. Loss Assets: A loss assets is one where loss has been identified by the bank
Assets Classification and or internal auditors or the RBI inspection but the amount has not been
Provision for Doubtful Debts written off, wholly or partly. Such as asset is not realizable, although there
may be some salvage or recovery value.
As per the present guidelines of the Provisions:-
Reserve Bank of India, the assets
classification and the requisite The purpose of classifications of bank assets is to make adequate provisions on
provision for doubtful debts is as under the basis of quality of assets, the realization of the security and the erosion in
the value of security. It has been directed that the banks should make provision
Assets Classification:- against the various assets on the following basis:
Banks are required to classify the loan S. No. Nature of Assets % of Provision is required
assets (advance) into four categories
viz.: 1. Standard Assets A provision of 0.25% is required.
i. Standard Assets: Standard assets
2. Sub-standard Assets A provision of 10% of total out-standing is
is one which does not disclose any made
problem and which does not carry
more than normal risk attached to 3. Doubtful Assets a) To the extent the debt is not covered by
the business. Such asset is
considered as performing assets. realizable value of the security, 100%
ii. Sub-standard Assets: Sub-stan- provision is to be made.
dard assets is one which has been
classified as a non-performing as- b) In addition to the above (a), for the secured
sets (NPA) for a period not exceed-
ing 18 months. There is no prom- portion of the doubtful assets, provision is
ise of recovering the dues in full,
having regard to the value of se- required to be make between 20% and 50%
curity or current network of the
borrower/guarantor, hence the depending upon the period for which the
possibility of loss in realizing such
debts. Also, the assets where the asset has remained doubtful as given below:
terms of loans agreement regard-
ing payment of interest and prin- Period for which the % of provision
cipal have been renegotiated/re-
scheduled after commencement advances have been
of production, should be treated as
sub-standard assets. These assets considered doubtful
may again be graded into stan-
dard asset, if at least two years Upto one year 20
More than one year but
upto three years 30
Above three years 50
4. Loss Assets The entire assets should be written off or if the
assets are to be retained in the books for any
reason 100% provision is required to be made.
Note: Provision towards standard assets should not be deducted from
advanced but shown separately as contingent provisions against standard assets
under "Other Liabilities and Provisions" - 'Others' is Schedule V of the Balance
Sheet.
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