In conformity with the prudential norms, Reserve Bank of India
[RBI] had from time to time directed the banks to keep provisions
with respect to the non-performing assets on the basis of
classification of assets into prescribed categories. Further,
taking into account the time lag between an account becoming
doubtful of recovery, its recognition as such, the realization of
the security and the erosion over time in the value of the security
charged to the bank, the bank should make the provisions against
substandard assets, doubtful assets and loss assets.
The RBI, in its Master Circular on Prudential Norms on Income
Recognition, Asset Classification and Provisioning pertaining to
Advances dated July 1, 2014, provided guidelines with respect to
provisioning of such loan accounts where there is erosion in the
value of security/the banks have knowledge that the fraud is been
committed by borrowers.
In case of such serious credit impairment, it will not be
prudent that such accounts should go through various stages of
asset classification and straightaway be classified as doubtful or
loss asset as appropriate, depending upon the realizable value of
On April 1, 2015, the RBI, on review, issued a guideline through
its circular on provisioning pertaining to Fraud Accounts. A
uniform provisioning norm in respect of all cases of fraud has been
prescribed as under:
a) The entire amount due to the bank (irrespective of the
quantum of security held against such assets), or for which the
bank is liable (including in case of deposit accounts), is to be
provided for over a period not exceeding four quarters commencing
with the quarter in which the fraud has been detected;
b) However, where there has been a delay, beyond the prescribed
period, in reporting the fraud to the Reserve Bank, the entire
provisioning is required to be made at once.
This guideline has not only circumferences the cases of fraud of
the amount due to bank, but also the amount for which the bank is
liable. In addition the RBI may also initiate the supervisory
action where there has been delay by the bank in reporting a fraud,
or provisioning there against and to adhere to the guidelines on
'Frauds- Classification and Reporting' in circular dated
July 1, 2014.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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