PRESTIGE INSTITUTE OF

MANAGEMENT DEWAS
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½ Interest and/ or installment of principal remain
overdue for a period of more than 90 days in respect
of a term loan,
½ The account remains Dzout of orderdz in respect of an
overdraft/ cash credit
½ The bill remains overdue for a period of more than
90 days in the case of bills purchased and
discounted
½ The installment or interest remains overdue for two
crop seasons in case of short duration crops and for
one crop season in case of long duration crops
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i Standard Assets Ȃ general provision of a

minimum of 0.25%
i Substandard Assets Ȃ 10% on total
outstanding balance, 10 % on unsecured
exposures identified as sub-standard &
100% for unsecured Dzdoubtfuldz assets.
i Doubtful Assets Ȃ 100% to the extent
advance not covered by realizable value of
security. In case of secured portion,
provision may be made in the range of 20%
to 100% depending on the period of asset
remaining sub-standard
i Loss Assets Ȃ 100% of the outstanding

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i Poor Credit discipline

i Inadequate Credit & Risk Management

i Diversion of funds by promoters

i Funding of non-viable projects

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i Drain on Profitability
i Impact on capital adequacy
i Adverse effect on credit growth as the
bankerǯs prime focus becomes zero
percent risk and as a result turn
lukewarm to fresh credit.
i Excessive focus on Credit Risk
Management
i High cost of funds due to NPAs

 
   

 
i Formation of the Credit Information Bureau
(India) Limited (CIBIL)
i Release of Willful Defaulterǯs List. RBI also
releases a list of borrowers with aggregate
outstanding of Rs.1 cr. and above against
whom banks have filed suits for recovery of
their funds
i Reporting of Frauds to RBI
i Norms of Lenderǯs Liability Ȃ framing of Fair
Practices Code with regard to lenderǯs
liability to be followed by banks, which
indirectly prevents accounts turning into
NPAs on account of bankǯs own failure

 
   

 
i Risk assessment and Risk management
i RBI has advised banks to examine all cases
of wilful default of Rs.1 crore and above and
file suits in such cases. Board of Directors
are required to review NPA accounts of Rs.1
crore and above with special reference to
fixing of staff accountability.
i Reporting quick mortality cases
i Special mention accounts for early
identification of bad debts. Loans and
advances overdue for less than one and two
quarters would come under this category.
However, these accounts do not need
provisioning

 
  
i Compromise Settlement Schemes
i Restructuring / Reschedulement
i Lok Adalat
i Corporate Debt Restructuring Cell
i Debt Recovery Tribunal (DRT)
i Proceedings under the Code of Civil Procedure
i Board for Industrial & Financial Reconstruction
(BIFR)/ AAIFR
i National Company Law Tribunal (NCLT)
i Sale of NPA to other banks
i Sale of NPA to ARC/ SC under Securitization and
Reconstruction of Financial Assets and Enforcement
of Security Interest Act 2002 (SRFAESI)
i Liquidation
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With a view to adopting the Basel Committee

framework on capital adequacy norms
which takes into account the elements of
risk in various types of assets in the balance
sheet as well as off-balance sheet business
and also to strengthen the capital base of
banks, Reserve Bank of India decided in
April 1992 to introduce a risk asset ratio
system for banks (including foreign banks)
in India as a capital adequacy measure.
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Essentially, under the above system the
balance sheet assets, non-funded items
and other off-balance sheet exposures
are assigned weights according to the
prescribed risk weights and banks have
to maintain unimpaired minimum capital
funds equivalent to the prescribed ratio
on the aggregate of the risk weighted
assets and other exposures on an
ongoing basis.
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i Minimum requirement of capital funds

i Banks are required to maintain a minimum
CRAR of 12% on an ongoing basis.
i Tier II elements should be limited to a
maximum of 100% of total Tier I elements for
the purpose of compliance with the norms.
i The elements of Tier I & Tier II capital do not
include foreign currency loans granted to
Indian parties.
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1. Elements of Tier I capital

a. Paid-up capital, statutory reserves, and other
disclosed free reserves, if any.
b. Capital reserves representing surplus arising
out of sale proceeds of assets.

2. Equity investments in subsidiaries, intangible

assets and losses in the current period and
those brought forward from previous periods,
should be deducted from Tier I capital.
†. In the case of public sector banks which have
introduced Voluntary Retirement Scheme
(VRS), in view of the extra-ordinary nature of
the event, the VRS related Deferred Revenue
Expenditure would not be reduced from Tier I
capital. However, it will attract 100% risk
weight for capital adequacy purpose.

4. Creation of deferred tax asset (DTA) results in

an increase in Tier I capital of a bank without
any tangible asset being added to the banks¶
balance sheet. Therefore, DTA, which is an
intangible asset, should be deducted from
Tier I capital.
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Elements of Tier II capital
i Undisclosed reserves and cumulative perpetual
preference shares.

i Revaluation reserves.

i General provisions and loss reserves.

i Hybrid debt capital instruments.

i Subordinated debt.

i Investment Fluctuation Reserve (IFR).


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