RBI/2009-10/168
DBOD.No.BP.BC. 46 /21.04.048/2009-10

September 24, 2009

The Chairman and Managing Directors / Chief Executive officers
All Scheduled Commercial Banks (including Local Area Banks)
(Excluding RRBs)

Dear Sir,

Prudential Norms on Income Recognition, Asset Classification, and Provisioning pertaining to Advances - Computation of NPA Levels

Please refer to paragraphs 3.2, 3.4, and 3.5 of our Master Circular DBOD.No. BP.BC. 17/21.04.048/2009-10 dated July 1, 2009 on the captioned subject.

2. It has been observed that banks follow different methods to compute and report Gross and Net Advances, and Gross and Net NPAs. While, on an account turning NPA, some banks reverse the interest already charged, and stop further interest application, others prefer to make provisions in lieu of interest already credited to Profit and Loss account, and continue to debit interest, though it is credited to Interest Suspense account instead of to Profit and Loss account. While all the aforesaid methods in substance are the same, there is a need for uniformity across banks in reporting of Advances and NPAs, so as to avoid any scope for different interpretations by the auditors/public, as also to improve the comparability of Advances position of banks.

3. Therefore, in consultation with Indian Banks’ Association, it has been decided that:

1. On an account turning NPA, banks should reverse the interest already charged and not collected by debiting Profit and Loss account, and stop further application of interest. However, banks may continue to record such accrued interest in a Memorandum account in their books, as is the practice currently followed by some banks.
   
   
2. For the purpose of computing Gross Advances, interest recorded in the Memorandum account should not be taken into account.

4.  Banks are, therefore, advised to compute their Gross Advances, Net Advances, Gross NPAs and Net NPAs, as per the annexed format with immediate effect.

Yours faithfully

(B. Mahapatra)
Chief General Manager

Annex

PART A

Details of Gross Advances, Gross NPAs, Net Advances and Net NPAs

PART B

Supplementary Details