Prudential Regulations for Banks

Every bank shall observe prudential guidelines given hereunder in the matter of classification of its assets and provisioning thereagainst.

(i) ¹Guidelines for Classification of Short Term Facilities:--

Classification	Determinant	Treatment of Income	Provisions to be made
1	2	3	4
1. OAEM (Other Assets Especially Mentioned)	Where mark-up/interest or principal is overdue (Past due) by 90 days from the due date.	Unrealized mark-up/interest to be put in Suspense Account and not be credited to Income Account.	No Provision is required.
2. Substandard	Where mark-up/interest or principal is overdue by 180 days or more from the due date.	As above.	Provision of 20% of the difference resulting form the outstanding balance of principal less the amount of liquid assets realizable without recourse to a Court of Law
3. Doubtful	Where mark-up/interest or principal is overdue by one year or more from the due date.	Unrealized mark-up/interest to be put in Suspense Account and not to be credited to Income Account.	Provision of 50% of the difference resulting from the outstanding balance of principal less the amount of liquid assets realizable without recourse to a Court of Law.
4. Loss	(a) Where mark-up/interest or principal is overdue beyond two years from the due date. (b) Where Trade Bills (Import/export or inland bills) are not paid/adjusted within 80 days of the due date.	As above. As above.	Provision of 100% of the difference resulting from the outstanding balance of principal less the amount of liquid assets realizable without recourse to a Court of Law.

Classification	Determinant	Treatment of Income	Provisions to be made
1	2	3	4
1. OAEM (Other Assets Especially Mentioned)	Where installments of principal or interest/mark-up is overdue (Past due) for 90 days or more from the due date.	Unrealized mark-up/interest to be put in Suspense Account and not to be credited to Income Account.	No Provision is required.
2. Substandard	Where installment of principal or interest/mark-up is overdue by one year or more.	As above.	Provision of 205 of the difference resulting from the outstanding balance of principal less the amount of liquid assets realizable without recourse to a Court of Law.
3. Doubtful	Where installment of principal or interest/mark-up is overdue by two years or more.	As above	Provision of 50% of the difference resulting from the outstanding balance of principal less the amount of liquid assets realizable without recourse to a Court of Law.
4. Loss	Where installment of principal or interest/mark-up is overdue by three years or more.	As above.	Provision of 100% of the difference resulting from the outstanding balance of principal less the amount of liquid assets realizable without recourse to a Court of Law.

(iii) Subjective evaluation of performance 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, cash operation in the account, documentation covering advances and credit worthiness and the borrower etc. The assessment will be made by bank as follows:-

(a) Where in a loan account which was lastly classified as loss, doubtful or substandard, the borrower had been making regular repayments during the following year and continues even upto the time of finalisation 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 of 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 be reclassified according to aging criteria.

(c) Only the realizable value of the assets duly mortgaged/pledged against banks’ loans and advances shall be considered while evaluating the assets and determining 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.