Central Repository of Information on Large Credits: Reserve Bank of India, through CRILCS proposes to collect, store and disseminate information regarding large credit borrowers in India. The banks under the proposal will be submitting to CRILCS information regarding borrowers availing facilities of more than Rs. 5.00Crores. The information will be collected at one place and member banks will be having access to this information. It will enable the banks to take better credit decision as they will be able to know the credit facilities availed by big borrowers collectively from the Indian banking system.

The banks are required to submit information for accounts availing aggregate credit facilities of more than Rs.5.00Crores. They have to further submit information of current accounts having balance of Rs.1.00Crores and above debit or credit both.   As per recent guidelines of RBI, an account should be classified as SMA before its status as NPA. The SMA classification for such accounts has been further divided into the following:

SMA0- Principal and Interest overdue for period not more than 30 days but accounts shows incipient signs of weakness.

SMA1- Principal or Interest overdue for period between 31-60 days

SMA2- Principal or Interest overdue for period between 61-90 days

To start with banks should report accounts classified under SMA 2.  The reporting of such classification will trigger the formation of Joint Lending Forum (JLF) compulsorily and the formulation of Corrective Action Plan(CAP). The account remaining SMA 2 must be reported on the 61st day itself.

Similarly banks should form JLF if an account remains SMA0 for three straight quarters and SMA 1 for 2 straight quarters.

Indian Bank Association (IBA) will form the master documents for JLF and the operational guidelines for it.

In order to limit the JLF, initially JLF will be mandatorily maintained for accounts of exposure above Rs.100 Crores. However, in case of request by the borrower himself the JLF will be formed irrespective of the exposure.

Corrective Action Plan under JLF will consists of following stages:-

i) Rectification:- the measures intend to turnaround the company without change in terms and conditions of the sanctioned facilities

ii) Restructuring:- In case of restructuring, it should be done only if there is not any willful default. At this stage commitment from promoters for extending their personal guarantee along with statement of net worth with legal copy of title to assets should be obtained along with undertaking that they would not take any transaction which would alienate the assets without permission of JLF. Restructuring can be taken up only for cases which are Standard (under SMA classification) or substandard.

iii) Recovery: Decision by 75% of creditors by value and 60% of creditors by number would be the basis for starting recovery process.

The JLF is required to arrive at the decision of corrective action to be taken within 30 days of first reporting of SMA2 or request by the borrower. If any lender after joining JLF re-tracks it would attract penal accelerated provisioning i.e. 5% even if account is Standard classified and varying from minimum 25% during first 6 months of its Substandard classification, 40% during substandard period of 6months to 1 years and 40% during Ist year of its doubtful classification (Assets is classified as doubtful after 1 year of substandard status) and 100% thereafter.

Currently banks are not allowed to sale standard assets, however the banks are now being permitted to sell SMA 2assets to ARCs.

In case value of sale of asset is higher than its book value, banks cannot reverse excess provisioning but will appropriate against loss arising on account of sale of assets to ARC below the book value. However provision is required to be made for any shortage in value arising out of sale of assets at value lower than book value. However the Reserve Bank is now allowing write back of excess provisioning in case of sale at higher than book value. Further in case any assets is sold before 31.3.2015 at lower than book value, banks can spread the losses over a period of 2 years.

 INCIPIENT SIGNS OF WEAKNESS- when classified as SMA 0

  1. Delay of 90 days or more in (a) submission of stock statement / other stipulated operating control statements or (b) credit monitoring or financial statements or (c) non-renewal of facilities based on audited financials.
  2. Actual sales / operating profits falling short of projections accepted for loan sanction by 40% or more; or a single event of non-cooperation / prevention from conduct of stock audits by banks; or reduction of Drawing Power (DP) by 20% or more after a stock audit; or evidence of diversion of funds for unapproved purpose; or drop in internal risk rating by 2 or more notches in a single review.
  3. Return of 3 or more cheques (or electronic debit instructions) issued by borrowers in 30 days on grounds of non-availability of balance/DP in the account or return of 3 or more bills / cheques discounted or sent under collection by the borrower.
  4. Devolvement of Deferred Payment Guarantee (DPG) instalments or Letters of Credit (LCs) or invocation of Bank Guarantees (BGs) and its non-payment within 30 days.
  5. Third request for extension of time either for creation or perfection of securities as against time specified in original sanction terms or for compliance with any other terms and conditions of sanction.
  6. Increase in frequency of overdrafts in current accounts.
  7. The borrower reporting stress in the business and financials