Please
refer to BID Circular No. 3 dated the 29th February,1986 and
Prudential Regulation No-VIII (as modified from time to time)
regarding classification of non-performing loans. In view
of the enforcement of revised disclosure standards, vide BPRD
Circular no.31 dated August 13, 1997, it has been decided
to review the classification standards as also requirements
of provisions. To this end following amendments ate made:
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i) Subjective
evaluation of performing and non- performing credit portfolio
for the accounting year ending December, 1997 and onwards
shall be made for risk assessment both for adjustment by way
of down grading or upgrading the category of classification.
The evaluation shall be carried out on the basis of adequacy
of security inclusive of its realizable value, cash flow of
borrower, his operating in the account, documentation covering
advances and credit worthiness of the borrower etc. The assessment
will be made by bank as follows: -
a) Where
on a loan account which was lastly classified as loss, doubtful
or sub standard, the borrower had been making regular repayments
during the following year and continues even upto the time
of finalization of annual accounts of the bank it may be put
into upgraded category provided collaterals available with
the bank are strong and or of sufficient value to cover the
outstanding amount and cash flow position justifies.
b) In
case a classified account is upgraded and no regular repayment
was thereafter received for a consecutive period of six months
or was irregular preceding next balance sheet date of the
bank, the account reclassified according to aging criteria.
c) Only
the realizable value of the provision requirements. The auditors/
inspectors shall determine the realizable value in accordance
with the guidelines and criteria that may be laid down by
the State Bank from time to time. The same will further be
subject to check by State Bank Inspectors.
ii) In
case of OAEM classification for the accounting year ending
December, 1997and onwards, no provisions need be created and
in case of sub-standard classification, providing on the accounting
year ending December, 1997and onwards, will be created at
20% of the difference resulting from the out standing balance
of principal less the account of liquid as sets releasable
with recourse to a court of law .
2. Other
instructions on the subject shall, however, remained unchanged
.
3. The
above instructions will come into force with immediate effect.
Please
acknowledge receipt.
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