What changed
This is an annual consolidation that replaces the July 1, 2008 master circular by incorporating all circulars issued up to June 30, 2009. No new policy changes were introduced; the document serves as a single reference for existing prudential norms on asset classification, provisioning, and restructuring.
What it means for you
Banks must use this updated master circular as the definitive guide for classifying advances as NPA, recognizing income, and making provisions. The circular reinforces borrower-wise asset classification, norms for agricultural and project loans, and detailed provisioning rates for standard, sub-standard, doubtful, and loss assets. It also includes guidelines for sale of NPAs to ARCs and restructuring of advances.
What you must do
- Replace the 2008 master circular with this 2009 version in your internal policy manuals and training materials.
- Ensure all credit and risk teams are aware that this circular consolidates instructions up to June 30, 2009, and reference it for NPA classification and provisioning decisions.
- Review your bank's current asset classification and provisioning practices against the updated circular to ensure compliance, especially for agricultural advances, project loans, and restructured accounts.
- Update your reporting systems to reflect the definitions of 'out of order' and 'overdue' as per this circular.
Who it affects
All commercial banks (excluding RRBs), Credit risk management teams, Loan operations and NPA monitoring departments, Internal audit and compliance functions
Does this master circular introduce any new asset classification norms?
No, it consolidates existing instructions issued up to June 30, 2009, without introducing new norms. Banks should refer to it as the single source for all prudential guidelines on IRAC and provisioning.
Are agricultural advances treated differently under this circular?
Yes, the circular includes specific classification norms for agricultural advances, considering factors like crop seasons and repayment cycles. Banks must follow these guidelines to correctly classify agricultural loans as NPA.
What are the provisioning requirements for standard assets?
The circular prescribes a general provision of 0.40% on standard assets, with higher rates for certain sectors like direct advances to agricultural and SME sectors. Specific rates are detailed in the master circular.