No longer current — withdrawn, no replacement on file yet
Source: Reserve Bank of India · RBI/2008-09/436 · issued 20 Apr 2009 · ~2 min read
Quick answerRBI revised the formula for computing erosion in fair value of restructured advances for UCBs. The new method uses BPLR plus term and credit risk premiums to discount cash flows, moderating swings with interest rate cycles. This change is effective immediately and must be applied consistently.
What changed
RBI amended paragraph 5.2(i) of the prudential guidelines on restructuring of advances for UCBs. The erosion in fair value is now computed as the difference between the present value of cash flows before and after restructuring, discounted at the bank's BPLR plus appropriate term and credit risk premiums on the restructuring date. This replaces the previous formula and is intended to moderate the impact of interest rate cycles on diminution calculations.
What it means for you
UCBs must adopt the new fair value computation method for all restructured advances, ensuring consistency and reducing volatility from interest rate fluctuations. The provisions arising from restructuring are distinct from NPA-related provisions and cannot be substituted. Banks should view restructuring as a tool to preserve economic value, not to evergreen loans.
Historical instruction — do not use for current compliance. This is what was required at the time; it no longer reflects current RBI requirements. If no replacement rule is linked above, that only means none is recorded on our register yet — it does not prove no later applicable rule exists. Confirm on the official RBI source below.
What banks were required to do at the time
Update internal systems and processes to compute fair value erosion using BPLR plus term and credit risk premiums as per the new formula.
Ensure consistent application of the revised formula for all future restructuring cases, with no requests for reversion to the old method.
Disclose in annual balance sheets for March 2009 the amount and number of accounts where restructuring applications are under process but not yet approved.
Maintain separate provisioning for restructuring-related erosion and NPA impairment, as they are not interchangeable.
Who it affects
Primary (Urban) Cooperative Banks, Borrowers with restructured advances, Bank auditors and compliance teams
repealed_by — Consolidation of Regulations — Withdrawal of circulars (28 Nov 2025)
Status change: withdrawn05 Aug 2026, 04:00 IST
Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).
How is the fair value of the loan before restructuring computed under the new formula?
It is the present value of cash flows representing interest at the existing rate before restructuring and principal, discounted at the bank's BPLR on the restructuring date plus appropriate term and credit risk premiums for the borrower category.
Can the provisions for restructuring erosion be used to cover NPA provisions?
No, the circular explicitly states that provisions from restructuring are distinct from NPA-related provisions and are not substitutes for each other.
What additional disclosure is required for the March 2009 balance sheet?
Banks must disclose the amount and number of accounts where restructuring applications are under process but not yet approved, in addition to existing disclosures on restructured loans.
📜 This document’s life story (2 recorded events, each backed by RBI’s own words)
RBI’s words: “In terms of paragraph 5.1 of circular UBD.PCB.BPD.No. 53 dated March 6, 2009”
Repealed byRBI/2025-26/100 — Consolidation of Regulations — Withdrawal of circulars (28 Nov 2025)
RBI’s words: “Official withdrawal register entry #1953: UBD.PCB.BPD.Cir.No.60/13.05.000/2008-09 — "Prudential Guidelines on Restructuring of Advances by UCBs" dated April 20, 2009”
📜 Read the original circular — full text as issued by RBI
Please refer to the Prudential Guidelines on Restructuring of Advances by UCBs enclosed to our circular RBI / 2008-09 / 403 UBD.PCB.BPD.No. 53 / 13.05.000 / 2008-09 dated March 6, 2009.
2. It has been decided to amend paragraph 5.2 (i) as under :
“The erosion in the fair value of the advance should be computed as the difference between the fair value of the loan before and after restructuring. Fair value of the loan before restructuring will be computed as the present value of cash flows representing the interest at the existing rate charged on the advance before restructuring and the principal, discounted at a rate equal to the bank’s BPLR as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring". Fair value of the loan after restructuring will be computed as the present value of cash flows representing the interest at the rate charged on the advance on restructuring and the principal, discounted at a rate equal to the bank’s BPLR as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring".
3. It may please be noted that the above formula moderates the swing in the diminution of present value of loans with the interest rate cycle and will have to be followed consistently in future. No request for changing the same, particularly for reversion to the present formula, will be entertained in future.
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2008-09/436 · issued 20 Apr 2009. The plain-English explanation above is BankPulse’s own independent summary.
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4934&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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