What changed
Earlier, asset classification and provisioning for State government guaranteed exposures depended on whether the guarantee was invoked. Now, that link is broken. From March 2006, overdue beyond 180 days triggers NPA norms; from March 2007, the threshold drops to 90 days, matching non-guaranteed exposures.
What it means for you
Banks can no longer keep State government guaranteed loans as standard assets indefinitely while waiting for guarantee invocation. This tightens NPA recognition and forces earlier provisioning, impacting profitability and capital adequacy. Lenders must monitor these exposures more actively and adjust credit risk assessment.
What you must do
- Review all State government guaranteed advances and investments to identify overdue accounts.
- Update asset classification and provisioning systems to apply 180-day (FY2006) and 90-day (FY2007) overdue thresholds.
- Train credit and risk teams on the new norms and ensure compliance from the specified dates.
- Engage with State government borrowers to prevent defaults and expedite recovery on overdue accounts.
Who it affects
Regional Rural Banks
What was the old rule for State government guaranteed exposures?
Previously, asset classification and provisioning were triggered only after the State government guarantee was invoked, allowing banks to delay NPA recognition.
When does the 90-day overdue norm apply?
From the year ending March 31, 2007, any State government guaranteed advance or investment overdue for more than 90 days will attract NPA classification and provisioning.
Does this circular apply to both advances and investments?
Yes, the revised norms cover both State government guaranteed advances and investments in State government guaranteed securities.