What changed
Paragraphs 48(4) and 48(5) of the existing IRAC directions for UCBs have been deleted. New paragraphs 53A and 53B clarify asset classification for accounts under resolution plans: standard accounts remain standard, and NPAs can be upgraded upon plan implementation. Additionally, new paragraphs 89A-89D mandate 5% extra provisioning for each restructuring under Chapter IV-A of the stressed assets directions, with write-back conditions.
What it means for you
UCBs now have clearer rules for classifying assets under resolution plans, reducing ambiguity on NPA upgrades. The 5% additional provisioning for each restructuring increases capital requirements, especially for repeated restructurings. Write-back provisions offer relief if borrowers meet payment or non-default conditions, incentivizing timely resolution.
What you must do
- Update IRAC policies to delete old paragraphs 48(4) and 48(5) and incorporate new paragraphs 53A, 53B, and 89A-89D.
- Ensure systems can track resolution plans under Chapter IV-A and apply 5% additional provisioning for each restructuring.
- Train credit and risk teams on write-back conditions: 20% debt repayment without NPA slip or one-year non-default for non-fund/cash credit facilities.
- Review existing resolution plan accounts to reclassify assets per new rules and adjust provisioning accordingly.
Who it affects
Urban Cooperative Banks (UCBs), Borrowers with stressed assets under resolution plans, Risk and compliance teams at UCBs
What happens to a standard account under a resolution plan?
It can be retained as 'Standard' upon implementation of the plan, provided the plan adheres to Chapter IV-A of the stressed assets directions.
When can the additional 5% provisioning be written back?
It can be reversed if the borrower pays at least 20% of outstanding debt without slipping into NPA post-restructuring and without another restructuring. For non-fund or cash credit facilities, reversal is allowed after one year if no default occurs.
Does this apply to all UCB restructurings?
No, it specifically applies to resolution plans implemented under Chapter IV-A of the Reserve Bank of India (Urban Cooperative Banks – Resolution of Stressed Assets) Directions, 2025.