The Presidents/Chief Executives
All Banks/DFls

Dear Sirs/ Madam,

AMENDMENTS IN PRUDENTIAL REGULATIONS –
PROVISIONING FOR LOANS AND ADVANCES

Please refer to BSD Circular No. 7 dated November 01, 2005 on the above subject.

2. In terms of Para 2(ii) of the above-referred circular, banks / DFIs were advised that separate instructions for withdrawal of the benefit of Forced Sale Value (FSV) of collateral shall be issued in due course. The matter has been revisited and it has been decided to completely withdraw the benefit of FSV against all NPLs for calculating provisioning requirement with effect from December 31, 2007. However, the benefit of FSV against NPLs of Housing Finance shall be applicable as follows:

1st Year – (from the date of classification) 50%
2nd Year – (from the date of classification) 50%
3rd Year & onwards – (from the date of classification) 0% (benefit of FSV not admissible)

3. Accordingly, the following Prudential Regulations (PRs) stand amended and are attached herewith:-

i) Annexure-IV of Regulation R-8 of PRs for Corporate/Commercial Banking.
ii) Annexure-III of Regulation R-11 of PRs for Small and Medium Enterprises Financing.
iii) Regulations R-22 (Housing Finance) of PRs for Consumer Financing.

4 Furthermore, the time period for classifying Personal Loans as “Loss” has been reduced from one year to 180 days. Accordingly, the amended Regulation R-27 (Personal Loans) of PRs for Consumer Financing is also enclosed.

5. All other instructions on the subject shall however, remain unchanged.

Please acknowledge receipt.

Encl: Attachments A, B, C & D