What changed
Previously, asset classification and provisioning for State Government guaranteed advances depended on whether the guarantee was invoked. Now, these exposures will follow the same prudential norms as non-guaranteed advances, with a phased implementation: from March 2006, overdue beyond 180 days triggers norms; from March 2007, overdue beyond 90 days triggers norms.
What it means for you
Co-operative banks must now treat State Government guaranteed advances like any other loan for NPA classification and provisioning, removing the earlier cushion of waiting for guarantee invocation. This tightens asset quality recognition and may increase provisioning requirements for overdue guaranteed exposures, especially as the transition to 90-day overdue norms approaches.
What you must do
- Review all State Government guaranteed advances and investments to identify those overdue beyond 180 days for March 2006 compliance.
- Prepare systems and processes to track overdue periods for guaranteed exposures, aligning with 90-day norms by March 2007.
- Update internal credit monitoring and provisioning policies to reflect the delinked norms.
- Communicate the revised norms to relevant branches and credit teams for consistent implementation.
Who it affects
State and District Central Co-operative Banks, Banks with State Government guaranteed advances or investments
What is the key change in this circular?
Asset classification and provisioning for State Government guaranteed advances will no longer depend on guarantee invocation. Instead, they will follow the same overdue-based norms as non-guaranteed exposures, phased in over two years.
When do the new norms take effect?
From the year ending March 31, 2006, overdue beyond 180 days triggers norms; from March 31, 2007, overdue beyond 90 days triggers norms.
Does this apply to investments in State Government guaranteed securities?
Yes, the circular explicitly covers both advances and investments in State Government guaranteed securities.