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To
determine the deposit base, the fortnightly
average of the NDTL reported in the statutory
returns in the preceding accounting year may be
reckoned so that a stable and reliable basis is
adopted.
The prudential norms recommended for banks
falling under different Tiers are as under:
(I) Tier I Banks i.e. Unit Banks with deposits
less than Rs.50 crore
(i) Asset classification norms:
To identify NPAs on the basis of 180 day
delinquency norm for three more years commencing
March 31 2005 but build up adequate provisions
in the BDDR over the next three years such that
they would be able to transit to 90 day NPA norm
by March 31 2008. Since the 90 day norm for
asset classification came into force effective
March 31 2004, revised asset classification norm
should not result in any write back of
provisions and the new norm would be applicable
for identification of NPAs in 2005 and onwards.
Note: Extant instructions would apply for
agricultural loans.
(ii) Provisioning norms:
The provisioning norms will be as under for
another three years:
Sub standard : 10%
Doubtful (up to one year) : 100% of unsecured
portion plus 20% of secured portion
Doubtful (one to three years) : 100% of
unsecured portion plus 30% of secured portion
Doubtful for more than 3 years: 100% of
unsecured portion plus 50% of secured portion
Loss : 100%.
Note: i) A Sub standard account will be
classified as doubtful after 18 months.
ii) All the above provisioning norms will
apply for another 3 years. Consequently
implementation of the instructions requiring
classification of substandard account into
doubtful category after 12 months instead of 18
months and 100 % provisioning for doubtful
assets of over 3 years would be deferred by
another three years. As such the banks should
build up adequate provisions over this period to
facilitate smooth transition.
(iii) Norms for Investment:
(iii.i) SLR: The minimum SLR holding in
Government and other approved securities as a
percentage of NDTL for non scheduled UCBs is
presently 15 % for banks with NDTL of over Rs.
25 crores and 10% for the remaining non
scheduled UCBs. It is observed that the smaller
banks, particularly those operating in rural,
semi-urban centers, find it difficult to make
investments in G-Sec due to lack of access to
the markets. In order to meet SLR requirements,
these banks often have to purchase G-Sec at a
price that is higher than prevailing market
rates, as they do not have the wherewithal to
obtain information on current market price of
these securities, like access to PDO-NDS
platform etc.
While efforts will be made to enable access to
securities' market through Primary Dealers, in
the interregnum, these banks could be exempted
from compulsory investment in G-Sec to the
extent of the deposits kept by them in SBI,
Associates and Nationalised banks.
(iii.ii) Non-SLR: Present limit of 10% of
total investments would continue.
(iv) Borrowings: Not to exceed 2% of
deposits
(v) Capital Adequacy:
At present all UCBs are required to comply with
9% CRAR akin to commercial banks. For easier
understanding and simplification, it is
suggested that CRAR in respect of Tier I banks
may be replaced with a Net Owned funds to NDTL
ratio. It is proposed that a NDTL to NOF ratio
of 15 could be prescribed.
(vi) Exposure Norms:
10% of capital funds or Rs.40 lakhs, which ever
is lower for individual borrower and 20% or
Rs.80 lakhs, which ever is lower, for group,
would be applicable in order to contain
concentration risk for the Tier I banks.
Off-Balance sheet exposure not to exceed 2
percent of NDTL.
(vii) Sensitive Sector Exposure:
Tier I banks should not be allowed to take any
direct exposure to real estate, builders or to
the capital market. However, loan for individual
housing may still be extended by these banks
upto the present limit of Rs.15 lakh per
individual borrower.
(viii) Audit:
Concurrent audit should be compulsory for all
banks. Statutory audit should be done using Long
Form Audit Report. Statutory audit of banks with
deposit base of over Rs 25 crore should be
entrusted to chartered accountants.
TIER - II ( All other banks):
For all banks, other than unit banks with
deposits upto Rs.50 crore, all regulations as
applicable to commercial banks should be
applied, However, for these banks the extant
relaxations for UCBs could remain in force for
the period already prescribed. Further,
facilities and opportunities available to
commercial banks should, as far as possible, be
also made available to such banks to enable them
to grow and compete with commercial banks. Banks
that do not comply with the regulations should
either reduce their operations to qualify for
the relaxed regulations applicable for unit
banks with deposits less than Rs.50 crore or may
be required to convert into cooperative
societies. |
