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, 2009. It replaces the previous master circular dated July 1, 2008. The key content remains largely unchanged, but all prior circulars are now superseded by this single document.
What it means for you
UCBs must use this master circular as the single reference for all prudential norms on asset classification and provisioning. The circular reinforces objective criteria for NPA classification based on recovery record, not subjective judgment. Banks need to ensure their internal systems align with these norms, and any deviations from RBI guidelines must be reported as divergences.
What you must do
- Replace the 2008 master circular with this 2009 version as the governing document for IRAC norms.
- Review all loan accounts to ensure NPA classification is borrower-wise, not facility-wise, as per Section 2.2.2.
- Update provisioning calculations to match the norms in Section 5, including for secured portions of doubtful assets.
- Ensure income recognition policies are objective and based on actual recovery, not subjective considerations.
- Report any divergences in asset classification or provisioning due to non-compliance with RBI guidelines as per Section 6.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Chief Executive Officers of UCBs, Credit and risk management teams at UCBs, Auditors and compliance officers at UCBs
Does this circular change the NPA classification norms for agricultural advances?
No, the circular consolidates existing norms. Agricultural advances continue to be treated as per the specific guidelines in Section 2.2.3, which remain unchanged from previous instructions.
What happens if a UCB does not comply with these provisioning norms?
Section 6 of the circular requires banks to report any divergence in asset classification and provisioning due to non-compliance with RBI guidelines. Such divergences must be disclosed and may attract supervisory action.
Can UCBs still use the Health Code system for classifying advances?
Yes, but it is no longer a supervisory requirement. Banks may continue it at their discretion for internal management, but the prudential norms in this circular are the mandatory basis for classification and reporting.