RESTRUCTURING / RESCHEDULING

Rescheduling of repayment programme becomes imperative, where income generation is adversely affected. On ascertaining the genuine problems of the borrowers, such accounts should be restructured/rescheduled by giving suitable restructuring package/repayment schedule. Industrial units : The norms relating to restructuring of standard and sub-standard assets were reviewed in March !!". #n the conte$t of restructuring of the accounts, the following stages at which the restructuring / rescheduling / renegotiation of the terms of loan agreement could take place can be identified % a& before commencement of commercial production % b& after commencement of commercial production but before the asset has been classified as sub standard. c& after commencement of commercial production and after the asset has been classified as sub standard. #n each of the foregoing three stages, the rescheduling, etc., of principal and / or of interest could take place with or without sacrifice as part of the restructuring package evolved. Treatment of Restructured Standard Accounts. a& ' rescheduling of the installments of principal alone, at any of the aforesaid first two stages would not cause a standard asset to be classified in the sub standard category provided the loan / credit facility is fully secured. b& ' rescheduling of interest element at any of the foregoing first two stages would not cause an asset to be downgraded to sub standard category sub(ect to the condition that the amount of sacrifice if any in the element of interest, measured in present value terms, is either written off or provision is made to the e$tent of the sacrifice involved. )or this purpose, present value terms and sacrifice if any will be arrived as under. i& *etermine what would be the amount of future interest for the balance period of the loan if interest had been charged at e$isting +,R / -+,R .as on the date of restructuring& / original risk factor applicable to the borrower at the time of initial sanction of the loan. ii& *iscount the interest cash flows at .i& above at +,R / -+,R .as on the date of restructuring& / original risk factor, to arrive at present value of future interest cash flows. iii& *etermine future interest on the balance period of the loan on the basis of the interest rate as restructured. iv& *iscount the cash flows at .iii& above at +,R/-+,R .as on the date of restructuring& / original risk factor to arrive at the present value of future interest cash flows. v& The sacrifice / provisioning would be .ii& minus .iv& c& #n case there is a sacrifice involved in the amount of interest in present value terms, as at .b& above, the amount of sacrifice should either be written off or provision made to the e$tent of the sacrifice involved.

Treatment of Restructured Su ! Standard Accounts a& ' rescheduling of the instalments of principal alone, would render a sub-standard asset eligible to be continued in the sub - standard category for the specified period. .i.e. a period of one year after the date when first payment of interest or of principal, whichever is earlier, falls due, sub(ect to satisfactory performance during the period& provided the loan / credit facility is fully secured. b& ' rescheduling of interest element would render a sub-standard asset eligible to be continued to be classified in sub standard category for the specified period .i.e. a period of one year after the date when first payment of interest or of principal, whichever is earlier, falls due, sub(ect to satisfactory performance during the period& sub(ect to condition that the amount of sacrifice if any, in the element of interest, measured in present value terms, is either written off or provision is made to the e$tent of the sacrifice involved. )or this purpose, present value terms and sacrifice if any will be determined as per details mentioned above. c& #n case there is a sacrifice involved in the amount of interest in present value terms as at .b& above, the amount of sacrifice should either be written off or provision made to the e$tent of the sacrifice involved. 0ven in cases where the sacrifice is by way of write off of the past interest dues, the asset should continue to be treated as sub-standard. U"#radation of restructured accounts The sub-standard accounts which have been sub(ected to restucturing etc., whether in respect of principal instalment or interest amount by whatever modality would be eligible to be upgraded to the standard category only after the specified period i.e. a period of one year after the date when first payment of interest or of principal, whichever is earlier, falls due, sub(ect to satisfactory performance during the period. The amount of provision made earlier, net of the amount provided for the sacrifice in the interest amount in present value terms as aforesaid could also be reversed after the one year period. *uring this one year period, the sub-standard asset will not deteriorate in its classification if satisfactory performance of the account is demonstrated during the period. #n case, however, the satisfactory performance during the one year period is not evidenced, the asset classification of the restructured account would be governed as per the applicable prudential norms with reference to the pre-restructuring payment schedule. General a& These instructions would be applicable to all type of credit facilities including working capital limits, e$tended to industrial units, provided they are fully covered by tangible securities. b& 's trading involves only buying and selling of commodities and problems associated with manufacturing units such as bottleneck in commercial production, time 1 cost escalation etc. are not applicable to them, these guidelines should not be applied to restructuring / rescheduling of credit facilities e$tended to traders. c& 2hile assessing the e$tent of security cover available to the credit facilities3 which are being restructured / rescheduled collateral security would also be reckoned provided such collateral is a tangible security properly charged to the bank and is not in the intangible form like guarantee etc. of the promoter / others. d& The asset classification status as on the date of approval of the restructured package by the competent authority would be relevant to decide the asset classification status of the account after restructuring / rescheduling / renegotiation.

e&

#t is not e$pected to repeatedly restructure / reschedule the credit facility unless there are very strong and valid reasons which warrant such repeated restructuring / rescheduling #t will not be appropriate to e$tend the special asset classification status as provided for in discussion earlier in a/cs , where there are repeated restructuring / rescheduling. f& 2hile the bank may consider other accounts also for restructuring such accounts would have to 4ualify the basic test of viability before it is considered for restructuring. 5owever, these accounts would not 4ualify for the special asset classification status available to restructured 6standard7 and restructured 6substandard7 accounts as per discussions earlier. The accounts which do not 4ualify for restructuring in terms of paras above will be sub(ected to the following norms. i& These restructured / rescheduled accounts would continue to age and migrate to the ne$t asset classification status in the normal course. #t should be ensured that the amount of sacrifice, if any, in the element of interest is either written off or provided for. The sacrifice will be determined as per details mentioned earlier. ii& These restructured / rescheduled accounts would be eligible to be upgraded to the standard category only after a period of one year after the date when first payment of interest or of principal, whichever earlier, falls due under the revised terms. 8ince the principles underlying the restructuring of all advances are identical R-# has harmonised the prudential norms across all categories of debt restructuring mechanisms, 9other than those restructured on account of natural calamities, which will continue to be covered by the e$tant guidelines issued by R-# .R+:*&;. T$e re%ised "rudential #uidelines are enumerated elo&: a& Revised prudential norms are applicable to all restructurings including those under :orporate *ebt Restructuring 9:*R; Mechanism. b& #t may also be noted that henceforth, the :*R Mechanism will also be available to the corporates engaged in non-industrial activities, if they are otherwise eligible for restructuring as per the criteria laid down for this purpose. T$e re%ised "rudential #uidelines are di%ided into follo&in# ma'or cate#ories: 8r. +articulars Refer " <eneral +rinciples and +rudential =orms for Restructured 'dvances% a& 0ligibility :riteria for restructuring of advances b& 'sset classification norms. c& #ncome Recognition norms. 'nne$. d& +rovisioning norms. .#& +rudential =orms for :onversion of +rincipal into *ebt / 04uity. > +rudential =orms for :onversion of ?npaid #nterest into @)unded #nterest Term ,oan@ .)#T,&, *ebt or 04uity #nstruments. A 8pecial Regulatory Treatment for 'sset :lassification. (iscellaneous #uidelines: i& Reporting% #nformation relating to number of accounts and amount of advances restructured, and the amount of diminution in the fair value of the restructured

ii& iii&

iv&

v&

advances be reported to :entral Office in the format enclosed .'nne$ure-#B& till the relevant format in credit set is revised. ' few illustrative cases on the asset classification of restructured accounts are given in 'nne$. C### The issue regarding convertibility .into e4uity& option as a part of restructuring e$ercise whereby the bank / financial institutions shall have the right to convert a portion of the restructured amount into e4uity shall be decided, keeping in view the statutory re4uirement under 8ection "D of the -anking Regulation 'ct, "DAD and relevant 80-# regulations. 's permitted by R-# ac4uisition of e4uity shares / convertible bonds / convertible debentures in companies by way of conversion of debt / overdue interest can be done without seeking prior approval from R-#, even if by such ac4uisition the prudential capital market e$posure limit prescribed by the R-# is breached. 5owever, this will be sub(ect to reporting of such holdings to R-#, *epartment of -anking 8upervision .*-8&, every month along with the regular *8- Return on 'sset Euality. =onetheless, the provisions of 8ection "D. & of the -anking Regulation 'ct, "DAD shall be complied with. 'c4uisition of non-8,R securities by way of conversion of debt is e$empted from the mandatory rating re4uirement and the prudential limit on investment in unlisted non-8,R securities, prescribed by the R-#, sub(ect to periodical reporting to the R-# in the aforesaid *8- return.

Anne)ure!I *rudential Guidelines on Restructurin# of Ad%ances.

+, General *rinci"les and *rudential Norms for Restructured Ad%ances. ' restructured account is one where the bank, for economic or legal reasons relating to the borrower7s financial difficulty, grants to the borrower concessions that the bank would not otherwise consider. Restructuring would normally involve modification of terms of the advances/ securities, which would generally include, among others, alteration of repayment period/ repayable amount/ the amount of instalments/ rate of interest .due to reasons other than competitive reasons&. A. Eli#i ilit- Criteria for restructurin# of ad%ances+. 'ccounts classified under 6standard7, 7substandard7 and 6doubtful7 categories only are eligible for restructuring. .. Restructuring / rescheduling / renegotiation cannot be done in borrowal accounts with retrospective effect. /. 2hile a restructuring proposal is under consideration, the usual asset classification norms would continue to apply. The process of re-classification of an asset s$ould not sto" merely because restructuring proposal is under consideration. The asset classification status as on the date of a""ro%al of t$e restructured "ac0a#e by the competent authority would be relevant to decide the asset classification status of the account after restructuring / rescheduling / renegotiation. 1. Restructuring cannot take place unless alteration / changes in the original loan agreement are made with the formal consent / application of the debtor. 5owever, the process of restructuring should be initiated in deserving cases sub(ect to customer

agreeing to the terms and conditions. 2. =o account will be taken up for restructuring unless the financial viability is established and there is a reasonable certainty of repayment from the borrower, as per the terms of restructuring package. The accounts not considered viable should not be restructured and the recovery measures in respect of such accounts should be initiated. 'ny restructuring done without looking into cash flows of the borrower and assessing the viability of the pro(ects / activity financed would be treated as an attempt at ever greening a weak credit facility. 3. The borrowers indulging in frauds and malfeasance will continue to remain ineli#i le for restructuring. 4. #n cases of borrowers classified as wilful defaulters specially in old cases where the manner of classification of a borrower as a wilful defaulter was not transparent and that the borrower is in a position to rectify the wilful default to our satisfaction, the restructuring of such cases may be done with -oard7s approval, while for such accounts the restructuring under the :*R Mechanism may be carried out with the approval of the :ore <roup only. 5. -#)R cases are not eligible for restructuring without their e$press approval. :*R :ore <roup in the case of advances restructured under :*R Mechanism / the lead bank in the case of 8M0 *ebt Restructuring Mechanism and the individual banks in other cases, may consider the proposals for restructuring in such cases, after ensuring that all the formalities in seeking the approval from -#)R are completed before implementing the package. 6. Asset classification norms Restructuring of advances could take place in the following stages% -efore commencement of commercial production /operation3 'fter commencement of commercial production/operation but before the asset has been classified as 6sub-standard73 'fter commencement of commercial production/operation and the asset has been classified as 6sub-standard7 or 6doubtful7 B Asset classification norms 1. Now as per RBI guidelines the general principle for asset classification in case of restructured advances is that the standard assets should be re-classified as sub-standard assets immediately on restructuring. !owever sub"ect to compliance of certain conditions all such borrowers will be entitled to retain the asset classification upon restructuring with e#ception of certain specified borrower categories. $he details of conditions and e#empted categories of borrowers are covered under %&pecial Regulatory $reatment% for asset classification and are furnished in subse'uent paragraphs( )ara * + )age ,(. $he non-performing assets &&. / 0.(1 upon restructuring1 would continue to have the same asset classification as prior to restructuring and slip into further lower asset classification categories as per e#tant asset classification norms with reference to the pre-restructuring repayment schedule.

-.

2.

All restructured accounts*, which have been classified as non-performing assets upon restructuring, would be eligible for up-gradation to the standard category after observation of satisfactory performance* during the specified period*. .FRefer 'nne$. ##& #n case, however, satisfactory performance after the specified period is not evidenced, the asset classification of the restructured account would be governed as per the applicable prudential norms with reference to the "re!restructurin# "a-ment sc$edule. .ny additional finance may be treated as standard asset1 up to a period of one year after the first interest + principal payment1 whichever is earlier1 falls due under the approved restructuring pac4age. !owever1 in the case of accounts where the pre-restructuring facilities were classified as sub-standard and doubtful1 interest income on the additional finance should be recognised only on cash basis. If the restructured asset does not 'ualify for up-gradation at the end of the abovespecified one-year period1 the additional finance shall be placed in the same asset classification category as the restructured debt as mentioned under item no. * above( In case a restructured asset1 which is a standard asset on restructuring1 is sub"ected to restructuring on a subse'uent occasion1 it should be classified as substandard. If the restructured asset is a sub-standard or a doubtful asset and is sub"ected to restructuring1 on a subse'uent occasion1 its asset classification will be rec4oned from the date when it became N). on the first occasion. !owever1 such advances7 restructured on second or more occasion may be allowed to be upgraded to standard category after one year from the date of first payment of interest or repayment of principal whichever falls due earlier in terms of the current restructuring package sub ect to satisfactory performance. F.FRefer 'nne$. ##& Income Recognition NormsInterest income in respect of restructured accounts classified as 9standard assets9 will be recogni:ed on accrual basis and that in respect of the accounts classified as 9non-performing assets9 will be recogni:ed on cash basis.

*.

3.

5.

,.

6.

8.

*.

+rovisioning norms". =ormal +rovisions% 5olding of provision against the restructured advances as per e$isting provisioning norms shall continue.

-esides above additional provision for diminution / erosion in the fair value of restructured advances shall be made. Reduction in the rate of interest and /or reschedulement of the repayment of principal amount, as part of the restructuring, will result in diminution/erosion in the fair value of the advance. 8uch diminution in value is an economic loss for the bank and will have impact on the bank7s market value of e4uity. #t is, therefore, necessary to measure such diminution in the fair value of the advance and make provisions for it by debit to +rofit 1 ,oss 'ccount. 8uch provision shall be held in addition to the provisions as per e$isting provisioning norms as indicated above, and in an account distinct from that for normal provisions.

.a& i.

The erosion in fair value of advance shall be calculated as under% .)or T,, 2:T, 1 )#T,&. :alculate the present value of future cash flows .principal and interest& as per the e$isting repayment terms of sanction as on the date of restructuring based on the e$isting applicable rate of interest as per R-+ .-+,R/ term premium / credit risk premium applicable to the borrower& / as per e$isting sanction terms .which ever applicable&. .Table for +resent Balue is enclosed for reference-see 'nne$ure B&. :alculate the present value of future cash flows .principal 1 interest& based on rate of interest applicable as per restructuring package. #n both the cases for computing the present value, the discount rate shall be e4uivalent to the rate of interest as per the R-+ as per e$isting sanction terms .which ever applicable& prevailing on the date of restructuring i.e. as mentioned under .i& above. The tenor will be the maturity of the respective term loan components.

ii. #ii

iv

The difference between .i& 1 .ii& above shall be considered as erosion in fair value and accordingly charged to +/, account. The accounting entries in this regard shall be passed at central office level only. 5owever the information on diminution in fair value has to be submitted to :.O. on half yearly basis as of 8eptember and March every year. .b& )or 2orking :apital )acilities, the calculation is same as that for Term ,oans. 5owever, for the purpose of principal, the limit or the outstanding in the ::/Overdraft account, whichever is higher should be reckoned. The tenor shall be one year. The term premium in the discount factor shall be as applicable for one year.

.c&

The diminution in the fair value is to be re-computed on each balance sheet date till satisfactory completion of all repayment obligations and full repayment of the outstanding in the account, so as to capture the changes in the fair value on account of changes in -+,R, term premium and the credit category of the borrower. :onse4uently, either additional provision for the shortfall will be made or the amount of e$cess provision held in the distinct account will be reversed. The accounting entry in this regard shall be passed at central office level only. #t should be ensured that total provision in an account .both normal plus provisions in lieu of erosion in fair value as mentioned above& does not e$ceed .i.e. capped at "!!G of& the total outstanding debt amount. #n the event any security is taken in lieu of the diminution in the fair value of the advance, it should be valued at Re."/- till maturity of the security. This will ensure that the effect of charging off the economic sacrifice to the +rofit 1 ,oss account is not negated. 8mall / rural branches may find it difficult to ensure computation of diminution in the fair value of advances e$tended by them. Therefore, as permitted by R-#, it has been decided to adopt the option of notionally computing the amount of diminution in the fair value and providing therefor, at five percent of the total e$posure at :entral Office, in respect of all restructured accounts where the total dues to bank are less than rupees one crore till the financial year ending March !"". The position would be reviewed thereafter. 2hile restructuring the advances it may be necessary to convert a part of the outstanding principal amount into debt or e4uity instruments such as debentures, shares etc as part of package. The debt/e4uity instruments so created will be classified in the same asset classification category in which the restructured advance has been classified. )urther movement in the asset classification of these instruments would also be determined based on the subse4uent asset classification of the restructured advance. #n the case of restructured accounts classified as 6standard7, the income, if any, generated by these instruments shall be recognised on accrual basis. #n the case of restructured accounts classified as non-performing assets, the income, if any, generated by these instruments shall be recognised only on cash basis. These instruments shall be held under H'vailable for 8aleH .')8& and valued as per usual valuation norms. 04uity classified, as standard asset shall be valued either at market value, if 4uoted, or at break-up value, if not 4uoted .without

.d&

.e&

.f&

.,

*rudential Norms for con%ersion of "rinci"al into De t/E7uit- instruments: .i&

.ii&

.iii&

.iv&

considering the revaluation reserve, if any,& which is to be ascertained from the company7s latest balance sheet. The break-up value means the private market value, which can be obtained by selling off the assets of the firm / company. #n case the latest balance sheet is not available the shares are to be valued at Re.".!!. 04uity instrument classified as =+' shall be valued at market value, if 4uoted, and in case where e4uity is not 4uoted, it should be valued at Re. ".!!. De"reciation on t$ese instruments s$all not e offset a#ainst t$e a""reciation in an- ot$er securities $eld under t$e A8S cate#or-. /, *rudential Norms for con%ersion of un"aid interest into funded interest term loan 98ITL,: De t or E7uit- instruments: .i& The )#T, / debt or e4uity instrument created by conversion of unpaid interest will be classified in the same asset classification category in which the restructured advance has been classified. )urther movement in the asset classification of )#T,/ debt or e4uity instruments would also be determined based on the subse4uent asset classification of the restructured advance. The income, if any, generated by these instruments shall be recognised on accrual basis, if these instruments are classified as 6standard7, and on cash basis in the cases where these have been classified as a non-performing asset. The unrealised income represented by )#T,/*ebt or e4uity instrument should have a corresponding credit in an account styled as H8undry ,iabilities 'ccount .#nterest :apitaliIation&H. #n the case of conversion of unrealised interest income into e4uity, &$ic$ is 7uoted, interest income can e reco#ni;ed after t$e account is u"#raded to standard cate#or- at mar0et %alue of e7uit-: on t$e date of suc$ u" #radation: not e)ceedin# t$e amount of interest con%erted into e7uit-. Only on repayment in case of )#T, or sale / redemption proceeds of the debt/e4uity instruments, the amount received will be recogniIed in the +1, 'ccount, while simultaneously reducing the balance in the H8undry ,iabilities 'ccount .#nterest :apitalisation&H.

.ii&

.iii&

.iv&

.v&

.vi& Baluation and provisioning norms would be as per +ara . & .iv& above. The depreciation, if any, on valuation may be charged to the 8undry ,iabilities .#nterest :apitalisation& 'ccount. In all cases of restructurin# &$ere con%ersion of "rinci"al and/or un"aid interest to e7uit-/de t instruments is "ro"osed "rior references must e made to Central <ffice for a""ro%al.

1, S"ecial Re#ulator- Treatment for Asset Classification: :onditions and e$empted categories% 's mentioned under - ."& above the general principle for asset classification in case of restructured advances is that the 6standard assets7 should be classified as 6sub-standard assets7 immediately on restructuring. / - . & The non-performing assets .88' 1 *'&, upon restructuring, would continue to have the same asset classification as prior to restructuring and slip into further lower asset classification categories as per e$tant asset classification norms with reference to the "re!restructurin# re"a-ment sc$edule. Ho&e%er su 'ect to com"liance of certain conditions all suc$ orro&ers &ill e entitled to retain t$e asset classification as at t$e time of restructurin# .called as 8pecial Regulatory Treatment& with e)ce"tion of certain specified borrower categories. The s"ecial treatment for asset classification is not a%aila le for follo&in# cate#ories of advances% i ii Consumer = "ersonal ad%ances .e$cept 5ousing ,oans to individuals&. 'dvances classified as Ca"ital (ar0et e)"osures.

iii 'dvances classified as Commercial Real Estate E)"osures. T$us: standard cate#or- accounts under a o%e t$ree cate#ories of ad%ances and t$e accounts: &$ic$ do not com"l- &it$ conditions under s"ecial re#ulator- treatment: s$all e classified as su !standard u"on restructurin#. 8imilarly the non-performing assets .88' and *'&, under these categories, upon restructuring, would continue to have the same asset classification as prior to restructuring and slip into further lower asset classification categories as per e$tant asset classification norms with reference to the "re! restructurin# re"a-ment sc$edule. T$e s"ecial conditions that are to be complied with are as under% ."& .a& .b& The dues of the bank are 6fully securedF7. .FRefer 'nne$. ##& 88# borrowers, where the outstanding is up to Rs. J lakh. #nfrastructure pro(ects, provided the cash flows generated from these pro(ects are ade4uate for repayment of the advance, an appropriate mechanism to escrow the cash flows are put in place, and also -ank has a clear and legal first claim on these cash flows. The unit becomes viable in "! years, if it is engaged in infrastructure activities, and in K years in the case of other units. 5owever the condition of 6fully secured7 s$all not e a""lica le in the following cases%

. &

.>& The repayment period of the restructured advance including the moratorium, if any, does not e$ceed "J years in the case of infrastructure advances and "! years in the case of other advances. 9T$e ceilin# of +> -ears: o%er t$e re"a-ment "eriod of t$e restructured ad%ances: &ould not e a""lica le for restructured $ousin# loans: since housing loans are normally granted with much longer repayment period su 'ect to com"liance &it$ all ot$er terms and conditions "rescri ed in t$is circular,. .A& +romoters@ sacrifice and additional funds brought by them should be a minimum of "JG of banks7 sacrifice. .J& +ersonal guarantee is offered by the promoter e$cept when the unit is affected by e$ternal factors pertaining to the economy and industry. .L& The restructuring under consideration is not a ?re"eated restructurin#@?. .FRefer 'nne$. ##& .K& T$e restructurin# "ac0a#e is im"lemented &it$in +.> da-s from t$e date of a""ro%al under t$e CDR mec$anism and &it$in A> da-s from t$e date of recei"t of a""lication - t$e ranc$ in non! CDR accounts. .'s such branches are advised to ensure finalisation of the said applications within the prescribed timeframe&. =on-fulfillment of an- of t$e a o%e conditions shall render the account ineli#i le for special regulatory treatment for asset classification. *lease note t$at in e%er- restructurin# "ac0a#e a standard clause of our ri#$t to accelerate re"a-ment and t$e orro&ersB ri#$t to "re"a- ma- e sti"ulated. Similarlour ri#$t of recom"ense s$ould also e sti"ulated. Anne)ure!II 9i, Ce- Conce"ts Ad%ances% The term 6'dvances7 will mean all kinds of credit facilities including cash credit, overdrafts, term loans, bills discounted/purchased, factored receivables, etc. and investments other than that in the nature of e4uity. A#ricultural Acti%ities% 's defined in R+:* circular R+:*. =o. +lan. -:. MA / !A.!D.!"/ !!L-!K dated 'pril >!, !!K as modified from time to time. 8ull- secured% 2hen the amounts due to a bank .present value of principal and interest receivable as per restructured loan terms& are fully covered by the value of security, duly charged in its favour in respect of those dues, the bank@s dues are considered to be fully secured. 2hile assessing the realisable value of security, primary as well as collateral securities would be reckoned, provided such securities are tangible securities and are not in intangible form like guarantee etc., of the promoter / others. 5owever, for this purpose the bank guarantees, 8tate <overnment <uarantees and :entral <overnment <uarantees will be treated on par with tangible security. Restructured accounts% ' restructured account is one where the bank, for economic or legal reasons relating to the borrower7s financial difficulty, grants to the borrower concessions that the bank would not otherwise consider. Restructuring would normally

9ii, 9iii,

9i%,

involve modification of terms of the advances / securities, which would generally include, among others, alteration of repayment period/ repayable amount/ the amount of instalments/ rate of interest .due to reasons other than competitive reasons&. 9%, Re"eatedl- restructured accounts% 2hen a bank restructures an account a second .or more& time.s&, the account will be considered as a 6repeatedly restructured account7. 5owever, if the second restructuring takes place after the period up to, which the concessions were e$tended under the terms of the first restructuring, that account shall not be reckoned as a 6repeatedly restructured account7. S(Es: 8mall and Medium 0nterprise .8M0& is an undertaking defined in R+:* circulars R+:*.+,=)8. -:. =o.L>.!L.! . / !!L-!K dated 'pril A, !!K amended from time to time. S"ecified *eriod% 8pecified +eriod means a period of one year from the date when the first payment of interest or installment of principal falls due under the terms of restructuring package. Satisfactor- "erformance% 8atisfactory performance during the specified period means adherence to the following conditions during that period. Non!a#ricultural cas$ credit accounts: #n the case of non-agricultural cash credit accounts, the account should not be out of order any time during the specified period, for duration of more than D! days. #n addition, there should not be any overdues at the end of the specified period. Non!a#ricultural term loan accounts% #n the case of non-agricultural term loan accounts, no payment should remain overdue for a period of more than D! days. #n addition there should not be any overdues at the end of the specified period. All a#ricultural accounts: #n the case of agricultural accounts, at the end of the specified period the account should be regular. Anne)ure!IIIAsset Classification of Restructured Accounts under t$e Guidelines *articulars Case + Case . Case / Case 1 # 'ssumed due date of >".!". !!K >".!". !!K payment 'ssumed date of >".!>. !!K >".!>. !!K >".!>. !!K >".!>. !!K restructuring +eriod of delin4uency as months months "M months "M months on the date of restructuring 'sset :lassification .':& @8tandard@ @8tandard@ @*oubtful @*oubtful before restructuring -less than -less than one year@ one year@ *ate of =+' =' =' >"." .!J >"." .!J .'ssumed& .'ssumed& ## Asset classification 9AC, on restructurin# 'ssumed status of the Eli#i le for Not eli#i le Eli#i le for Not eli#i le

9%i,

9%ii,

9%iii ,

borrower ': after restructuring

special regulatory treatment @8tandard@

'ssumed first payment >"." .!K >"." .!K due under the revised terms ### Asset classification after restructurin# ' T$e account "erforms satisfactoril- as "er restructured terms .a& ': during the specified =o change @*oubtful =o change one year period .i.e., from .i.e., remains less than one >"." .!K to >"." .!M& @8tandard@& year@ w.e.f. >".!>.!M .i.e. one year after classification as @8ubstandard@& .b & ': after the specified one year period :ontinues in @8tandard@ category ?pgraded to @8tandard@ category

for special regulatory treatment *owngraded to @8ubstandard@ w.e.f >".!>.!K .i.e., on the date of restructuring& >"." .!K

special regulatory treatment @*oubtful less than one year@

for special regulatory treatment @*oubtful less than one year@

>"." .!K

@*oubtful one to three years@ w.e.f. >"." .!K .i.e., one year after classification as @*oubtful less than one year@& ?pgraded to ?pgraded to @8tandard@ @8tandard@ category category ?Dou tful one to t$ree -ears? w.e.f. >"." .!K ?Dou tful ! one to t$ree -ears? w.e.f. >"." .!K .i.e., one year after classification as @*oubtful less than one year@ .on >"." .!L& 2ill migrate further to @*oubtful more than three years@ w.e.f. >"." .!D

If performance not satisfactory vis-;-vis restructured terms .a& ': during the specified Treated as @Dou tful ! one year period .in case su standard less t$an one the unsatisfactory w.e.f -ear@ w.e.f. performance is established >!.A. !!K 1 >".!>.!M .i.e. before completion of one downgraded one year after year period& to @*oubtful classification less than one year@ with effect from >!.!A.!M. .b & ': after the specified one year period, if the unsatisfactory performance continues 2ill migrate to @*oubtful one to three years@ w.e.f >".!>.!D and @*oubtful more than

2ill migrate to @*oubtful more than three years@ w.e.f >"." .!D

three years@ w.e.f. >".!>. !"". Anne)ure!ID !articulars of Accounts "estructured#"s. in crore$ CDR (ec$anism Standard ad%ances restructured Su standard ad%ances restructured Dou tful ad%ances restructured T<TAL =o. of -orrowers 'mount outstanding 8acrifice .*iminution in the fair value& =o. of -orrowers 'mount outstanding 8acrifice .*iminution in the fair value& =o. of -orrowers 'mount outstanding 8acrifice .*iminution in the fair value& =o. of -orrowers 'mount outstanding 8acrifice .*iminution in the fair value& S(E De t Restructurin# <t$ers

N+rudential <uidelines on Restructuring of 'dvancesO issued by :redit Monitoring department at page J of +ara * speak about additional provision for diminution / erosion in the fair value of restructured advances which is re4uired to be made at the time of restructuring and steps to be taken for calculation of diminution in fair value. There is a uniform method of calculating the erosion in fair values in the 0P:0, format. The format is in two parts. )irst format is to be filled in on the basis of original sanction data and the second format is to be filled in on the basis of restructured sanction data. To fill in the said formats the following information is re4uired :opy of original sanction letter immediately prior to the date of restructuring ". . :opy of sanction letter on restructuring :RR.:redit Risk Rating& of the account on the date of restructuring and applicable RO# based on such :RR i.e R-+.risk based pricing&. Row no. - *etails of repayment schedule such as monthly/4uarterly etc

T$e ste"s in%ol%ed in fillin# u" t$e formats are! ".

. >. A. J.

Row no >- RO# based on R-+ #ncluding risk premium 1 term premium . not the RO# being charged& as on the date of restructuring. Row A- Original amount sanctioned to be filled in. Row J- =ame of the 'ccount. Row D .column >&- 's on date of restructuring total amount overdue for repayment .principal amount& as per original terms of sanction should be mentioned followed by remaining repayment schedule as per terms of sanction covering entire residual period of repayment. #f interest amount is overdue .as per original terms of sanction& the said amount shall be filled in column L .row D&. Row "! .column A&-+rincipal amount e$cluding overdue principal as stated in column > to be mentioned. #n column J actual RO# .i.e. e$isting RO#& being charged to be mentioned. #n short sum of column > and A would be the total outstanding principal as on date of restructuring.

L.

8imilarly second format should also be filled in based on terms of sanction of restructuring. =o other columns or rows are to be filled in. 'll other calculations are formula based. )ormat # will calculate the present value of future cash flows as per OR#<#=', terms of sanction. +art ## will calculate the present value of future cash flows based on R08TR?:T?R0* terms of sanction. The total present value shall be reflected in the last column of both the formats. +lease note that RO# . i.e. discount rate& based on R-+ is same for both the formats. The difference between present values of )ormat /erosion in fair value which is to be provided for. # 1 )ormat ## is the diminution

The branches/ROs are to calculate the diminution value in respect of all restructured accounts including 88'/*' assets having e$posure of Rs"!!.!lakhs and above and report the same through credit set no "": duly certified by the auditors at the end of each 4uarter to credit monitoring department under intimation to commercial 1 corporate credit department at :.O. +lease note that credit set no "": shall henceforth be submitted every 4uarter. #n order to retain the asset class of the restructured advances as 8T'=*'R* .provided the account was in standard asset category at the time of restructuring& the borrower has to comply with all the special regulatory conditions as mentioned in the circular dated !J."".!M. One of the conditions is to bring in at least "JG of the bank7s sacrifice .i.e. provision on account of diminution in fair value& as promoter7s contribution. This contribution has to be brought in to the business by way of additional infusion. Therefore while conveying sanction upon restructuring the diminution value provision needs to be calculated and it should be ensured that "JG of the same is brought in by the borrower immediately as contribution towards provision made on account of diminution value by the bank. ' :hartered 'ccountant7s certificate having brought in the said "JG contribution in to the business should be obtained and kept on record. Ad%ances $a%in# outstandin# alance elo& Rs+.>>crore #n case of advances having outstanding balances below Rs. "!!.!!lakhs, which are restructured, a flat provision of JG of the restructured amount is made at :.O. on account of diminution value. 's such "JG of the said flat provision . i.e. !.KJG of the restructured advance& needs to be brought in by the borrower immediately as his

contribution. ' certificate from :' to this effect should also be obtained and kept on record. The list of such accounts should also be prepared and kept on record at branch and consolidated list of such accounts .branch wise& the region should be prepared at Regional Office 1 kept on record. The consolidated amount of such restructured accounts of the region as a whole be furnished in credit set no."" : at the end of each 4uarter. -esides above, the calculation of diminution value of all restructured accounts having outstanding balances of Rs"!!.!!lakhs and above has to be done every year as at >" st March. -ased on such recalculation either additional provision has to be made or there will be write back in e$isting provision. #n view of this we re4uest you to recalculate the diminution value as at >".!>."! in respect of all accounts restructured having outstanding balances of Rs"!!.!!lakhs and above on or before >".!>.!D. The working sheet on all such accounts as of >".!>.!D shall be sent to respective regional offices. The recalculated diminution value should be submitted to :.O. through credit set "": as of >".!>."!. as stated above. #t may be mentioned here that if the rate of interest on restructured advances is lower than the pre-restructuring rate then diminution value may increase which will have adverse impact on bank7s profitability. Therefore it is advised that efforts should be made to fi$ appropriate rate of interest on restructuring, by analyIing the pro(ected cash flows in an ob(ective manner, so that diminution value can be minimiIed whenever there is scope for improvement in RO#. 8imilarly in case of e$isting restructured advances, after scrutiniIing the present cash flows, possibility of increasing the rate of interest should be e$plored where the cash flow permits the same. =eedless to mention here that review of all restructured accounts should be made on an on going basis to ensure that the repayment obligations under restructuring are met as per restructuring sanction terms and the asset class of such accounts do not deteriorate further.