Doubtful / Loss assets / AUCA are not generally considered amenable to any rehabilitation efforts and hence, these assets are being clubbed so that the focus of the review will shift entirely to various means of recovery, i.e. legal action, compromises, sale of assets to Securitisation Companies (SCs) / Reconstruction Companies (RCs) such as ARCIL, enforcement of security rights under SARFAESI Act 2002, assignment of debt, assignment of decree, etc. AUCA is also included for structured review, as recovery efforts in these accounts may not have been fully exhausted. Further, there may be accounts which have deteriorated to Doubtful/Loss asset category due to mere passage of time and not due to deterioration of security and are still viable. In such cases also, restructuring should be examined as the first option.
(ii) Cut-off point :
Rs.10 lac and above (Outstandings)
(Accounts below the cut-off level are not covered by the structured reporting norms. However, in these cases, branches would formulate and pursue the account specific action plans as hitherto, with the approval of the sanctioning authority. In addition, in RNW, all accounts above Rs.1 lac but below Rs.10 lac may be reported monthly, on a consolidated basis, to the controller for purpose of monitoring. The Circles may also put in place a suitable structured review of these accounts (Rs.1 lac to Rs.10 lac), taking into account the local situation and requirements.)
(iii) Reviewing Authority :
The authority structure for review of Doubtful / Loss / AUCA assets would be as under:
Outstandings Reviewing authority
Rs.10 lacs to Rs.1 cr. ZCC in RNW
CCC-II in CNW (all accounts up to Rs.1 cr.)
Above Rs.1 cr.
(including above Rs.5 cr.) Circle level NPA task force (CirMAC)
Above Rs.5 cr. High level NPA task force at
Corporate Centre
• Henceforth, reports on sub-standard assets above Rs.5 cr. need not be submitted to Corporate Centre for review by the high level NPA Task Force as it would review only Doubtful / Loss / AUCA above Rs.5 cr.
• LHOs would submit reports on Doubtful / Loss / AUCA accounts above Rs.5 cr. to CGM (Credit Mgmt.) as per format advised vide Cr.M/NPAM-I/ARP/296 dated 6.6.03. At the Circle level also the same format may be used for structured review of such accounts.
• Accounts below the cut-off level are not covered by the formal reporting. However, in these cases, branches and their controllers would formulate and pursue the account specific action plans as hitherto.
• Doubtful / Loss assets may also be considered for restructuring, subject to their viability.
• The existing authority structure prescribed for removal of entries from AUCA would continue separately.
V. Rationale for the above integrated approach :
The primary intent behind the new integrated approach detailed above is to ensure that a SMA does not slip to sub-standard or a sub-standard account to Doubtful / Loss category due to lack of timely finance or reliefs / concessions. The first step to achieve this objective would be to identify stressed assets quickly and to determine whether the problems are of the temporary nature or whether they are likely to persist and affect the asset quality if proactive action is not taken. The restructuring plan thereafter should be aimed at units whose intrinsic viability is beyond doubt and which have genuine cash flow problems and which have defaulted for reasons beyond their control. It may be ensured that only borrowers with genuine intent to restructure the units are supported. The Management’s ability to turnaround the unit would also be a critical consideration.
The integrated approach being introduced is expected to bring greater focus on review of stressed assets so as to quickly identify accounts amenable to restructuring. The Bank’s policy would be that in cases where restructuring is considered feasible, branches would consider restructuring as the first option in management of stressed assets. To give the desired thrust to restructuring across the Bank, a uniform approach to holding on operations and reliefs / concessions, but with necessary in-built flexibility is being put in place. It is also expected that wherever restructuring is not considered feasible on account of non-viability or any other reason, the branches would quickly consider exit option or the usual steps for recovery.
VI. Reliefs and concessions – a uniform approach :
a. Extension of RBI norms on reliefs and concessions to weak / sick SSI units to potentially viable units in other sectors :
RBI had in January’02, as part of the revised guidelines for rehabilitation of sick SSI units, laid down broad norms for reliefs and concessions which can be extended by banks / FIs to potentially viable sick units (details are given in Annexure 4). RBI also clarified that banks will also have the freedom to extend reliefs and concessions beyond the laid down parameters in deserving cases.
Given the RBI’s simple and easily implementable approach to reliefs/ concessions, the same may be extended across the Bank to various categories of advances as given below :
(i) Non-CDR , Non-BIFR manufacturing units in C&I segment
(ii) Non-CDR, Non-BIFR manufacturing units in AGL segment. (While no minimum loan size is being prescribed, it may be advisable to extend the approach only to relatively larger loans in AGL segment.)
(iii) In SSI sector, units falling within the RBI’s definition of a sick SSI unit would continue to be eligible for reliefs and concessions as per RBI guidelines. SSI units which do not readily fall within the RBI’s definition of sick SSI unit may also be extended reliefs and concessions as per RBI guidelines, if they require immediate support through restructuring etc. to retain their viability. In other words, complying with the RBI’s definition of a sick SSI unit need not be necessarily reckoned as a pre-condition for extending holding on operations and rehabilitation / restructuring with reliefs and concessions to otherwise deserving SSI units.
(In all cases above, reliefs and concessions as per RBI guidelines may also be extended to SMAs.)
(iv) Though RBI’s norms for reliefs and concessions to potentially viable units are primarily intended for manufacturing units, non-manufacturing sectors such as Trade & Services, small business and personal segment may also be considered for rehabilitation / restructuring. In such cases, rescheduling of term loans, if any, and/ or stipulating repayment / regularization programme in cash credit facility would generally suffice. Interest concessions may be extended only highly selectively.
How to review doubtful or lost Assets?
