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RBI/2021-2022/125
DOR.STR.REC.68/21.04.048/2021-22

November 12, 2021

All Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks) excluding Payments Banks
All Primary (Urban) Co-operative Banks/State Co-operative Banks/District Central Co-operative Banks
All-India Financial Institutions (Exim Bank, NABARD, NHB and SIDBI)
All Non-Banking Financial Companies (including Housing Finance Companies)

Madam/Dear Sir,

Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances – Clarifications

Please refer to the Master Circular on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances (IRACP norms) dated October 1, 2021. With a view to ensuring uniformity in the implementation of IRACP norms across all lending institutions, certain aspects of the extant regulatory guidelines are being clarified and/or harmonized, which will be applicable mutatis mutandis to all lending institutions. Wherever references to circulars/instructions applicable to banks have been made, other lending institutions may refer to instructions as applicable to them. All the instructions in this circular, except those at paragraphs 2, 8-9 and 13, shall be effective immediately from the date of this circular.

A. Specification of due date/repayment date

2. The extant instructions on IRACP norms specify that an amount is to be treated as overdue if it is not paid on the due date fixed by the bank. It has been observed that due dates for repayments are sometimes not specifically mentioned in the loan agreements, and instead a description of due dates is mentioned, leaving scope for different interpretations. Henceforth, the exact due dates for repayment of a loan, frequency of repayment, breakup between principal and interest, examples of SMA/NPA classification dates, etc. shall be clearly specified in the loan agreement and the borrower shall be apprised of the same at the time of loan sanction and also at the time of subsequent changes, if any, to the sanction terms/loan agreement till full repayment of the loan. In cases of loan facilities with moratorium on payment of principal and/or interest, the exact date of commencement of repayment shall also be specified in the loan agreements. These instructions shall be complied with at the earliest, but not later than December 31, 2021, in respect of fresh loans. In case of existing loans, however, compliance to these instructions shall necessarily be ensured as and when such loans become due for renewal/review.

B. Classification as Special Mention Account (SMA) and Non-Performing Asset (NPA)¹

3. The circular DBR.No.BP.BC.45/21.04.048/2018-19 dated June 7, 2019 on ‘Prudential Framework for Resolution of Stressed Assets’ requires the lenders to recognize incipient stress in borrower accounts, immediately on default, by classifying them as special mention accounts (SMA). In order to remove any ambiguity, it is clarified that the intervals are intended to be continuous and accordingly, the basis for classification of SMA categories shall be as follows:

4. In the above context, it is further clarified that borrower accounts shall be flagged as overdue by the lending institutions as part of their day-end processes for the due date, irrespective of the time of running such processes. Similarly, classification of borrower accounts as SMA as well as NPA shall be done as part of day-end process for the relevant date and the SMA or NPA classification date shall be the calendar date for which the day end process is run. In other words, the date of SMA/NPA shall reflect the asset classification status of an account at the day-end of that calendar date.

Example: If due date of a loan account is March 31, 2021, and full dues are not received before the lending institution runs the day-end process for this date, the date of overdue shall be March 31, 2021. If it continues to remain overdue, then this account shall get tagged as SMA-1 upon running day-end process on April 30, 2021 i.e. upon completion of 30 days of being continuously overdue. Accordingly, the date of SMA-1 classification for that account shall be April 30, 2021.

Similarly, if the account continues to remain overdue, it shall get tagged as SMA-2 upon running day-end process on May 30, 2021 and if continues to remain overdue further, it shall get classified as NPA upon running day-end process on June 29, 2021.

5. It is further clarified that the instructions on SMA classification of borrower accounts are applicable to all loans², including retail loans, irrespective of size of exposure of the lending institution.

C. Clarification regarding definition of ‘out of order’

6. Cash credit/Overdraft (CC/OD) account is classified as NPA if it is ‘out of order’. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, the extant instructions, inter alia, stipulate that the account should be treated as ‘out of order’ if there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period. In order to avoid any ambiguity regarding determination of ‘out of order’ status of CC/OD accounts on a continuous basis, it is clarified that an account shall be treated as ‘out of order’ if:

1. the outstanding balance in the CC/OD account remains continuously in excess of the sanctioned limit/drawing power for 90 days, or

2. the outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but there are no credits continuously for 90 days, or the outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but credits are not enough to cover the interest debited during the previous 90 days period.

7. Accordingly, treatment of CC/OD accounts as ‘out of order’ on or after the date of this circular shall be based on the above instructions.

D. NPA classification in case of interest payments

8. In terms of paragraph 2.1.3 of the Master Circular on IRACP norms dated October 1, 2021, in case of interest payments, an account is classified as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter. In order to fully align with the 90 days delinquency norm as well as the requirement to apply interest at monthly rests, the above instructions are modified as under:

In case of interest payments in respect of term loans, an account will be classified as NPA if the interest applied at specified rests remains overdue for more than 90 days.

9. These instructions shall be effective from March 31, 2022. Accordingly, in respect of any borrower account which becomes overdue on or after March 31, 2022, its classification as NPA shall be based on the account being overdue for more than 90 days.

E. Upgradation of accounts classified as NPAs

10. It has been observed that some lending institutions upgrade accounts classified as NPAs to ‘standard’ asset category upon payment of only interest overdues, partial overdues, etc. In order to avoid any ambiguity in this regard, it is clarified that loan accounts classified as NPAs may be upgraded as ‘standard’ asset only if entire arrears of interest and principal are paid by the borrower. With regard to upgradation of accounts classified as NPA due to restructuring, non-achievement of date of commencement of commercial operations (DCCO), etc., the instructions as specified for such cases shall continue to be applicable.

F. Income recognition policy for loans with moratorium on payment of interest

11. In cases of loans where moratorium has been granted for repayment of interest, lending institutions may recognize interest income on accrual basis for accounts which continue to be classified as ‘standard’. This shall be evaluated against the definition of ‘restructuring’ provided in paragraph 1 of the Annex-1 to the above-mentioned ‘Prudential Framework for Resolution of Stressed Assets’ dated June 7, 2019. However, income recognition norms for loans towards projects under implementation involving deferment of DCCO³ and gold loans for non-agricultural purposes⁴ shall continue to be governed as per the existing instructions.

12. The extant instructions (compiled at paragraph 3.2 of the Master Circular on IRACP norms dated October 1, 2021) require that once an account is classified as NPA, the entire interest accrued and credited to income account in the past periods, must be reversed to the extent it remains unrealised. It is clarified that if loans with moratorium on payment of interest (permitted at the time of sanction of the loan) become NPA after the moratorium period is over, the capitalized interest corresponding to the interest accrued during such moratorium period need not be reversed.

G. Consumer Education

13. With a view to increasing awareness among the borrowers, lending institutions shall place consumer education literature on their websites, explaining with examples, the concepts of date of overdue, SMA and NPA classification and upgradation, with specific reference to day-end process. Lending institutions may also consider displaying such consumer education literature in their branches by means of posters and/or other appropriate media. Further, it shall also be ensured that their front-line officers educate borrowers about all these concepts, with respect to loans availed by them, at the time of sanction/disbursal/renewal of loans. These instructions shall be complied with at the earliest, but not later than March 31, 2022.

Yours faithfully,

(Manoranjan Mishra)
Chief General Manager

RBI/2021-2022/124
CO.IDMD.GBD(P).No.S1242/08.01.001/2021-22

November 12, 2021

All Scheduled Commercial Banks
All State Co-operative Banks / All Scheduled Primary
(Urban) Co-operative Banks / All Financial Institutions /
All Primary Dealers/All stock exchanges/
Clearing Corporation of India Ltd

Madam/ Dear Sir,

Auction of Government Securities: Non-Competitive Bidding Facility to retail investors

As part of continuing efforts to increase retail participation in government securities, the ‘RBI Retail Direct’ Scheme to facilitate investment in Government Securities by individual investors was introduced today. Under the scheme, Clearing Corporation of India Limited (CCIL) has been permitted to aggregate the bids received from ‘Retail investor’ in non-competitive segment of primary auctions of Government Securities and Treasury Bills.

2. Accordingly, the updated Scheme for Non-Competitive Bidding Facility in the auctions of Government Securities and Treasury Bills is given in Annex.

Yours faithfully,

(Rajendra Kumar)
Chief General Manager

Annex

Scheme for Non-Competitive Bidding Facility in the auction of
Government of India Dated Securities and Treasury Bills

I. Scope: With a view to encouraging wider participation and retail holding of Government securities, retail investors are allowed participation on “non- competitive” basis in select auctions of dated Government of India (GoI) securities and Treasury Bills.

II. Definitions: For the purpose of this scheme, the terms shall bear the meaning assigned to them as under:

1. Retail investor is any person, including individuals, firms, companies, corporate bodies, institutions, provident funds, trusts, and any other entity as may be prescribed by RBI.

2. ‘Aggregator/Facilitator’ means a Scheduled Bank or Primary Dealer or Specified Stock Exchange or any other entity approved by RBI, permitted to aggregate the bids received from the investors and submit a single bid in the non-competitive segment of the primary auction.

3. ‘Specified stock exchange’ means SEBI recognised Stock Exchange, which have received No Objection Certificate (NOC) from SEBI to act as aggregator/facilitator in the primary auction segment.

4. ‘Eligible Provident Funds’ are those non-government provident funds governed by the Provident Funds Act 1925 and Employees’ Provident Fund and Misc. Provisions Act, 1952 whose investment pattern is decided by the Government of India.

III. Eligibility:

(A) Participation on a non-competitive basis in the auctions will be open to a retail investor who:

1. does not maintain current account (CA) or Subsidiary General Ledger (SGL) account with the Reserve Bank of India; and

2. Submits the bid indirectly through an Aggregator/Facilitator permitted under the scheme; or

3. maintains the ‘Retail Direct Gilt Account’ (RDG Account) with RBI

Exceptions:

a. Regional Rural Banks (RRBs) and Cooperative Banks:

1. Regional Rural Banks (RRBs) and Cooperative Banks shall be covered under this Scheme only in the auctions of dated securities in view of their statutory obligations.

2. Since these banks maintain SGL account and current account with the Reserve Bank of India, they shall be eligible to submit their non- competitive bids directly.

b. State Governments, eligible provident funds and Others:

1. State Governments, eligible provident funds in India, the Nepal Rashtra Bank, Royal Monetary Authority of Bhutan and any Person or Institution, specified by the Bank, with the approval of Government, shall be covered under this scheme only in the auctions of Treasury Bills.

2. These bids will be outside the notified amount.

3. There will not be any restriction on the maximum amount of bid for these entities.

IV. Quantum: Allocation of non-competitive bids from retail investors will be restricted to a maximum of five percent of the aggregate nominal amount of the issue within the notified amount as specified by the Government of India, or any other percentage determined by Reserve Bank of India.

V. Amount of Bid:

1. The minimum amount for bidding will be ₹10,000 (face value) and thereafter in multiples in ₹10,000 as hitherto.

2. In the auctions of GoI dated securities, the retail investors can make a single bid for an amount not more than Rupees Two crore (face value) per security per auction.

VI. Other Operational Guidelines:

1. The retail investor desirous of participating in the auction under the Scheme would be required to maintain a depository account with any of the depositories or a gilt account under the constituent subsidiary general ledger (CSGL) account of the Aggregator/ Facilitator or ‘Retail Direct Gilt Account’ (RDG Account) with RBI.

2. Under the Scheme, an investor can make only a single bid in an auction. An undertaking to the effect that the investor is making only a single bid will have to obtained and kept on record by the Aggregator/Facilitator.

Submission of Bids:

3. Each Aggregator/Facilitator on the basis of firm orders received from their constituents will submit a single consolidated non-competitive bid on behalf of all its constituents in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber) system. Except in extraordinary circumstances such as general failure of the Reserve Bank of India Core Banking Solution (E-Kuber) system, non-competitive bid in physical form will not be accepted.

Allotment of Bids:

4. Allotment under the non-competitive segment to the Aggregator/Facilitator will be at the weighted average rate of yield/price that will emerge in the auction on the basis of the competitive bidding. The securities will be issued to the Aggregator/Facilitator against payment on the date of issue irrespective of whether they have received payment from their clients.

5. In case the aggregate amount of bid is more than the reserved amount (5% of notified amount), pro rata allotment would be made. In case of partial allotments, it will be the responsibility of the Aggregator/Facilitator to appropriately allocate securities to their clients in a transparent manner.

6. In case the aggregate amount of bids is less than the reserved amount, the shortfall will be taken to competitive portion.

Issue of Security:

7. Security would be issued only in SGL form by RBI. The Aggregator/Facilitator has to clearly indicate at the time of tendering the non-competitive bids the amounts (face value) to be credited to their main SGL or CSGL account.

8. Delivery in physical form from the Main SGL account is permissible at the instance of the investor subsequently.

9. It will be the responsibility of the Aggregator/Facilitator to pass on the securities to their clients. Except in extraordinary circumstances, the transfer of securities to the clients should be completed within five working days from the date of issue.

Commission/Brokerage charged to Clients

10. The Aggregator/Facilitator can recover up to six paise per ₹100 as brokerage/commission/service charges for rendering this service to their clients. Such costs may be built into the sale price or recovered separately from the clients.

11. In case, the securities are transferred subsequent to the issue date of the security, the consideration amount payable by the client to the Aggregator/Facilitator will include accrued interest from the date of issue.

12. Modalities for obtaining payment from clients towards cost of the securities, accrued interest, wherever applicable, and brokerage/commission/service charges may be worked out by the Aggregator/Facilitator as per agreement with the client.

13. It may be noted that no other costs, such as funding costs, should be built into the price or recovered from the client.

VIII. Reporting Requirements:

Aggregators/Facilitators will be required to furnish information relating to operations under the Scheme to the Reserve Bank of India (Bank) as may be called for from time to time within the time frame prescribed by the Bank.

IX. The aforesaid guidelines are subject to review by the Bank and accordingly, if and when considered necessary, the Scheme will be modified.