What changed
Paragraph 29 of the existing Directions is deleted. New paragraphs 36A and 36B are inserted: 36A allows standard accounts to stay standard after a compliant resolution plan, and upgrades NPAs that slipped due to calamity to standard upon plan implementation; 36B keeps accounts restructured under paragraphs 32J-32R as standard even if subsequent restructuring is needed under Chapter IV-A. New provisioning norms (60A-60D) require an additional 5% specific provision on outstanding debt for resolution plans under Chapter IV-A, with additional 5% for each repeated restructuring, and write-back conditions after 20% repayment or one year for non-fund/cash credit facilities. New income recognition rules (68A-68B) specify accrual basis for resolution plan accounts and cash basis for accounts under paragraph 36B.
What it means for you
RRBs must now follow stricter provisioning for resolution plans under the new stressed asset framework, increasing capital requirements. The asset classification relaxations for calamity-affected and repeatedly restructured accounts provide some relief but come with higher provisioning costs. Banks need to update their internal systems and policies to align with these amended directions.
What you must do
- Delete paragraph 29 from your existing IRAC policy and insert new paragraphs 36A and 36B as specified.
- Implement additional 5% specific provisioning for all resolution plans under Chapter IV-A of the RRB Stressed Assets Directions, 2025.
- Set up tracking mechanisms for write-back conditions: 20% debt repayment without NPA slippage or one-year default-free period for non-fund/cash credit facilities.
- Train credit and risk teams on the new asset classification rules for calamity-affected and repeatedly restructured accounts.
Who it affects
Regional Rural Banks (RRBs), RRB credit and risk management teams, RRB compliance and audit departments
What happens to accounts that slipped into NPA due to a calamity before a resolution plan is implemented?
Under new paragraph 36A, such accounts shall be upgraded to 'Standard' upon implementation of a resolution plan that complies with Chapter IV-A of the RRB Stressed Assets Directions, 2025.
What is the additional provisioning requirement for resolution plans under Chapter IV-A?
Banks must make an additional specific provision of 5% of the outstanding debt for each resolution plan implemented under Chapter IV-A, over and above existing prudential provisions, subject to a ceiling of 100%.
When can the additional specific provisions be written back?
Provisions can be written back if the borrower pays at least 20% of the 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 occurred.