What changed
This is an annual consolidation of all existing instructions on income recognition, asset classification, and provisioning for UCBs, updated to include guidelines issued up to June 30, 2007. It replaces the previous master circular dated August 8, 2006, and serves as a single reference document.
What it means for you
UCBs must use this circular as the sole reference for prudential norms, ensuring uniformity in classifying assets as NPAs, recognizing income, and making provisions. The circular emphasizes objective criteria based on recovery records, not subjective factors like security value. Banks must align their internal systems with these norms to reflect true financial health.
What you must do
- Replace the August 2006 master circular with this updated version for all income recognition, asset classification, and provisioning decisions.
- Ensure asset classification is based on objective recovery records, not borrower net worth or security value.
- Review and update internal systems to comply with the detailed NPA classification and provisioning norms outlined in the circular.
- Report NPAs to RBI as per the guidelines in section 2.2.10 of the circular.
Who it affects
All Primary (Urban) Co-operative Banks, Chief Executive Officers of UCBs, Compliance and risk management teams at UCBs
Does this circular change the NPA classification criteria for agricultural advances?
The circular includes specific treatment for agricultural advances under section 2.2.3, but the source does not detail any changes from previous norms. Banks should refer to the full circular for those provisions.
Can we continue using the Health Code system for classifying advances?
The Health Code system is no longer a supervisory requirement, but banks may continue it at their discretion for internal management purposes.
What should we do if state cooperative laws have stricter norms?
If state laws or rules are more stringent than RBI's prudential norms, those stricter requirements must be followed.