As a prelude to implementation of the integrated approach, Category III SMAs, i.e. accounts rated SB6 / SBTL6 and below, which are not in default or do not show any warning signals, would not be designated as SMAs for any purpose. Accordingly, SMAs would hereafter comprise only the Category I & II accounts. In other words, Standard accounts, which do not show any warning signals and are in all respects well conducted, would not be categorised as SMAs, just for the reason that they have been rated SB6/SBTL6 to SB8/SBTL8. (The above modification would not be a deviation from RBI guidelines in any way, as Category III accounts were included by our Bank as part of SMAs as a cautious strategy. However this has been found to unnecessarily over-crowd the SMA review process, obviating the very purpose behind introduction of SMAs.)
II. Stressed Assets Review (SAR) :
(i) Coverage :
SAR would cover loan assets which have the potential for quick turnaround, i.e. SMAs, (Category I & II) and sub-standard assets.
(ii) Cut-off :
Rs.10 lac and above (outstandings)
(Accounts below the cut-off level are not covered by the structured reporting norms and also related guidelines on holding on operations etc. that are detailed later. However, in these cases, branches would formulate and pursue account specific action plans, with the approval of the sanctioning authority. In addition, in RNW, report on all stressed accounts above Rs.1 lac but below Rs.10 lac may be submitted monthly, on a consolidated basis, to the controller. The report format may be designed and circulated by CirCO with the approval of the CirMAC. The Circles may also put in place a suitable mechanism for review of these accounts (Rs.1 lac to Rs.10 lac), taking into account the local requirements.)
(iii) Stressed Assets Review Report (SAR Report) :
The basic strategy underlying the Bank’s approach to restructuring is initiation of appropriate corrective actions at the right time. Soon after an account is identified as SMA or an account turns sub-standard, the Branch should take immediate steps to analyse the problems based on facts and circumstances by means of a review at the Branch as per SAR Report format given in Annexure 2. Such reports are to be submitted to reviewing authorities as detailed later. The important parameters of the Branch level review would be the following:
i. Diagnose reasons for the account being identified as SMA / deterioration in asset quality.
ii. Revalidate the assumptions made at the time of credit sanctions particularly in regard to assessment of credit risk.
iii. Verify completeness and correctness of documentation including revival position, creation / registration of charges, insurance cover etc. and rectify deficiencies, if any.
iv. Discuss the unit’s problems with the promoters / guarantors and find out whether they have a future plan for the unit
v. Identify and study the existing primary and secondary sources of cash flow and determine whether the unit is intrinsically viable.
vi. Determine whether the problems faced by the unit are of a temporary nature or whether any proactive action from the bank is required to sustain its viability.
vii. Assess whether the promoter(s) / management has genuine intent to rehabilitate the unit.
viii. Assess the ability of the promoters / management to turnaround the unit.
After taking a view on the viability of the unit / feasibility of restructuring, the Branch should also decide on the need to immediately put the unit on holding on operations. If the branch is satisfied that the unit needs to be put on holding on operations, pending finalisation and implementation of the restructuring package, the branch may extend the same immediately as detailed later in para III. No separate approval would be required for extending the same.
(iv) Organisational set up for Stressed Assets Review :
At the ZO/LHO level, existing structure for handling SMAs and NPAs (dealing officers, department etc.) would continue as hitherto. As SAR reports from branches would be account-wise, the reports would continue to flow to the respective departments depending upon whether the account is SMA or sub-standard. However, DGM (Module) / CirMAC may identify a Nodal Officer at the ZO/LHO as a single point of contact for all stressed asset related matters. The Nodal Officer would also handle all related correspondence with the ZO / LHO / Corporate Centre.
(v) Reviewing Authority :
The SAR Report would be submitted by the Branch to the controllers at monthly intervals. The Reports would thereafter be reviewed by the following authorities:
Reviewing Authority
Accounts with outstandings of
RNW
CNW
Up to Rs.1 cr.
AGM (Region)/
DGM (Module)
DGM (CB) /
GM (CB)
Above Rs.1 cr. to Rs.5 cr.
ZCC
CCC-II
All Circle sanctions of Rs.5 cr & above
CCC-II
CCC-II
All Corporate Centre sanctions
CCC-I
CCC-I
(vi) Action by the reviewing authority :
The reviewing authority would take the SAR Report on record and give necessary directions to the Branch on the recommended action plan. If the unit is considered intrinsically viable and if the reviewing authority concurs with the branch’s views in this regard, the holding on operations already initiated by the Branch would continue and the Branch would proceed with the action plan, subject to directions of the reviewing authority. The purpose of the structured review is only to examine the viability and approve the action plan for proceeding with the restructuring effort. The financial sanction for the restructuring proposal would be separate as per extant Delegation of Financial Powers. If after the structured review, the unit is not considered potentially viable, recovery efforts are to be immediately initiated. The reviewing authority would give necessary directions to the effect.
(vii) Time Norms :
The speed with which problems are diagnosed and the package is implemented is vital to the success of any restructuring plan. Similarly, in cases where restructuring is not considered feasible, the speed with which recovery steps are initiated is equally critical. Accordingly and keeping in view the 90 day IRAC norm, the following revised time norms may be followed for review of stressed assets and for obtaining sanction for rehabilitation package:
Process
Time frame
Submission of SAR Report
10 days
Approval for action plan (by reviewing authority)
5 days
Completion of viability study, if necessary, and for submission of restructuring / rehabilitation package and obtention of sanction from sanctioning authority
45 days
Total
60 days
(viii) Monitoring by controllers :
The branch’s controller is to monitor the progress in implementation of the approved action plan and subsequent restructuring. A monthly progress report may be submitted by the Branch to the controllers as per the format given in Annexure 3.
III. Holding on operations :
i. Holding on operations would commence from the date branch identifies an SMA – Category I & II or a Sub-standard account as ‘potentially viable’. (Such holding on operations would not require any Administrative Clearance / approval / sanction and would need to be only reported as per the Report format being laid down.)
ii. The prescribed reviewing authority would take the report on commencement of holding on operations on record and give necessary directions to the branch on the proposed action plan.
iii. The holding on operations would consist of freezing the bank’s exposure at the sanctioned limit or average daily exposure during the previous one month prior to the date of reporting, whichever is higher and allowing operations within such frozen limit.
iv. The branches may, where considered necessary, continue to open LCs even if an LC had devolved earlier due to genuine cash flow problems / mismatches. No increase in margins may be sought. (Concessional margins may also be considered as part of the rehabilitation package and subject to approval of the appropriate authority.)
v. During the holding on operations, the branch may also selectively permit full interchangeability between LC and cash credit limits, but within the overall frozen exposure level.
vi. Holding on operations may in deserving cases continue for a maximum period of three months from the date of identification of an SMA- Category I & II or a Sub-standard account as ‘potentially viable’ and for a maximum period of one month from the date of approval of the restructuring package. (The 4 month period is being prescribed as the outer limit for holding on operations in larger accounts. Ordinarily, the branches should endeavour to strictly complete the review and restructuring exercise within 60 to 90 days in view of the current IRAC norms.)
