What changed
Previously, provisioning on the secured portion of NPAs in the 'doubtful for more than three years' category remained at 50% until classified as loss assets. Now, for co-operative banks, a graded scale applies: 60% by March 31, 2008, 75% by March 31, 2009, and 100% by March 31, 2010 for existing stock, and 100% immediately for new classifications from April 1, 2007. Unsecured portion continues at 100%.
What it means for you
Co-operative banks must accelerate NPA recovery and increase provisions, impacting profitability and capital adequacy. The phased approach gives time to adjust, but the eventual full provisioning on secured portion reduces balance sheet flexibility. Banks need to strengthen recovery mechanisms and monitor aging of doubtful assets closely.
What you must do
- Review all advances classified as 'doubtful for more than three years' and calculate provisioning as per the new graded schedule.
- Ensure board approval of this circular and update internal provisioning policies accordingly.
- Expedite recovery efforts on aged NPAs to minimize provisioning impact, leveraging SARFAESI Act provisions.
- Monitor asset classification timelines to identify advances approaching the 'doubtful >3 years' threshold for proactive provisioning.
Who it affects
State Co-operative Banks, District Central Co-operative Banks, Co-operative bank auditors and compliance teams
What is the provisioning requirement for unsecured portion of NPAs in 'doubtful for more than three years'?
The unsecured portion, not covered by realisable value of tangible security, continues to require 100% provisioning as before.
When does the 100% provisioning on secured portion become effective for existing NPAs?
For existing stock as on March 31, 2007, 100% provisioning on secured portion is required by March 31, 2010. For advances classified as 'doubtful more than three years' on or after April 1, 2007, 100% provisioning applies immediately.
Does this circular apply to all commercial banks?
No, this circular specifically applies to State Co-operative Banks and District Central Co-operative Banks. Other banks may have separate instructions.