Basis for Loan Classification :
01. Objection Criteria
02. Qualitative Judgement
All good loans are treated as Unclassified and Overdue loans have been classified into 4 categories
01. Special Mention (SM) Account
02. Sub-Standard (SS)
03. Doubtful (DF)
04. Bad & Loss (BL).
Objective criteria for determining the preliminary classification status is as under : For Continuous Loans & Demand Loans :
Period of Arrears Classification Status a) Less than 3 months UC
b) 3 months or more but less than 6 months SM c) 6 months or more but less than 9 months SS d) 9 months or more but less than 12 months DF e) 12 months or more BL
Term Loans upto 5 years :
Period of Arrears Classification Status
a) Less than 3 months UC b) 3 months or more but less than 6 months SM c) 6 months or more but less than 12 months SS d) 12 months or more but less than 18 months DF e) 18 months or more BL
Term Loans for more than 5 years :
Period of Arrears Classification Status
a) Less than 3 months UC b) 3 months or more but less than 12 months SM c) 12 months or more but less than 18 months SS d) 18 months or more but less than 24 months DF e) 24 months or more BL
Term Loans for more than 5 years :
Period of Arrears Classification Status
a) Less than 3 months UC b) 3 months or more but less than 12 months SM c) 12 months or more but less than 36 months SS d) 36 months or more but less than 60 months DF e) 60 months or more BL
Provision for Classified Loans :
04. Bad & Loss - 100%
Maintenance of provision:
(a) (i) Banks will be required to maintain General Provision in the following way :( 1 ) @ 1 % a g a i n s t a l l u n c l a s s i f i e d l o a n s ( o t h e r t h a n l o a n s u n d e r S m a l l E n t e r p r i s e a n d Consumer Financing and Special Mention Account.)(2) @ 2% on the unclassified amount for Small Enterprise Financing.(3 )
@ 5 % o n t h e u n cl a s s i f i e d a m o u n t f o r C o n s u m e r F i n a n c in g w h e r e a s i t h a s t o b e m a i n t a i n e d @ 2 % o n t h e u n c l a s s i f i e d a m o u n t f o r ( i ) H o u s i n g F i n a n c e a n d ( i i ) L o a n s f o r Professionals to set up business under Consumer Financing Scheme (4) @ 5% on t he outsta ndin g am ount o f lo ans ke pt in the 'S pe cial Me ntion A cco unt ' aft e r netting off the amount of Interest Suspense.(b ) ( i ) B a n k s w i l l m a i n t a i n p r ov i s i o n a t t h e f o l l o w in g r a t e s
i n r e sp ec t o f c l a ss i f i ed Continuous, Demand and Fixed Term Loans:(1) Sub-standard 20%(2) Doubtful 50%(3) Bad/Loss 100%(ii) P rovisi o n in r esp ect of S hort -t erm A gric ultur al and Micr o - Credit s is to be m aint ain ed at the following rates:( 1) All c r edits ex c ept 'Ba d/ Loss '(i .e .
'Dou btful ', 'S ub -st and ard ', ir re gul ar a nd r e gula r c redit accounts) : 5%(2) 'Bad/Loss' : 100%5. Base for Provision :Provision will be maintained at the above rate on the balance to be ascertained by deductingthe amount of 'Interest Suspense' and value of eligible securities from the outstanding balanceof classified account
Purpose Oof provisioning:
1. loans are regularly reviewed and prudently classified in a manner that appropriately reflect credit risk;
2. loans which are not performing in accordance with contractual repayment terms are timely recognized and reported as past due ;
3. accrued but uncollected interest on loans is properly accounted for; and
4. timely and adequate provisions are made to the ―Provisions for Loan Losses Account‖ in order to ensure
that disclosed capital and earnings performance are accurately stated.