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8.
40 ADVANCED ACCOUNTING
UNIT 4: INCOME RECOGNITION, CLASSIFICATION

OF ASSETS AND PROVISIONS
LEARNING OUTCOMES
In this unit, you will be able to:

 Determine the profit/loss of a bank which is determined by
the income recognition policy. Learn the technique of income
recognition followed by a bank.
 Classify advances of a Bank according to the riskiness i.e.
standard assets, sub-standard assets, doubtful assets, and
loss assets. Try to understand the definitions of various
categories and also follow Illustration given in the chapter to
learn.
 Create adequate provision against sub-standard, doubtful
and loss assets. This helps to find out the bank profit in a
conservative manner. Reserve Bank (RBI) has issued
guidelines stating the rates to be followed for making such
provision.
 Make provision for depreciation on their current investments.
Learn how to classify investments into permanent and current
and also follow the
© The Institute of Chartered Accountants of India

BANKING COMPANIES 8.41
4.1 INCOME RECOGNITION

Bulk of a banks’ income is from two sources:-
1. Interest earned on Loans & Advances extended to its customers.
2. Discount and commission earned handling Bills of Exchange and Non-Funded
advances like Letter of Credit (LC), Letter of Guarantee (LG) etc.
In this unit Income recognition from Loans & Advances will be dealt with and in the
next unit Income from Bills/LCs’/LGs’ will be taken up.
Income recognition for interest earned is a function of classification of the Bank
loans & advances (i.e. its Assets into Performing & Non-Performing Assets (NPA’s)).
For Performing assets income is recognised as it is earned i.e. accrued. It is an
essential condition for accrual of income that it should not be unreasonable to
expect its ultimate collection. For Non-Performing assets interest income is not
considered on accrual basis and it is recognised only when it is actually received.
Basically an NPA is a bad and doubtful debt.
An asset becomes non-performing when the bank does not receive income from it
for a certain period. In concept, any credit facility (assets) becomes non-performing
“when it ceases to generate income for a bank.”
Income from non-performing assets can only be accounted for as and when it is
actually received.The Accounting Standard 9 (AS 9) on ‘Revenue Recognition'
issued by the Institute of Chartered Accountants of India (ICAI) requires that the
revenue that arises from the use, by others, of enterprise resources yielding interest
should be recognized only when there is no significant uncertainty as to its
measurability or collectability.
Illustration 1
Given below are the interests on advances of a commercial bank (` in lakhs)
Performing Assets NPA
Interest Interest Interest Interest
earned received earned received
Term Loans 120 80 75 5
Cash credits and overdrafts 750 620 150 12
Bills purchased and discounted 150 150 100 20
Find out the income to be recognized for the year ended 31st March, 20X1.

8.42 ADVANCED ACCOUNTING
Solution
Interest on performing assets should be recognised on accrual basis, but interest
on NPA should be recognised on cash basis.
` in lakhs
Interest on Term Loan : (120 + 5) = 125
Interest on cash credits and overdraft : (750 + 12) = 762
Income from bills purchased and discounted : (150 + 20) = 170
1,057
Illustration 2
Find out the income to be recognized in the case of SS Bank for the year ended
31st March, 20X1:
(` in lakhs)
Performing Assets Non-performing Assets
Interest Interest Interest Interest
accrued received accrued received
Term loans 240 160 150 10
Cash credits and overdrafts 1,500 1,240 300 24
Solution
Calculation of interest income of SS Bank to be recognized for the year ended
31.3.20X1
(` in lacs)
Term Loan
Interest accrued on Performing Assets 240
Interest received on Non - Performing Assets 10 250
Cash credit and overdraft
Interest accrued on Performing Assets 1,500
Interest received on Non - Performing Assets 24 1,524
Total interest to be recognized 1,774
Identification of NPA
The Reserve Bank of India has issued detailed guidelines to banks regarding the

classification of advances between performing and non-performing assets which

are revised from time to time. The latest guidelines for identifying an NPA’s are:
1. Bills purchased and discounted become NPA if interest and / or instalment
of principal remain overdue for a period exceeding 90 days.
2. Term Loans: become NPA if their amount (interest or principal) remain
overdue wholly or partly for a period exceeding 90 days.
3. A cash credit / overdraft account is treated as NPA if it becomes out of
order. An account is deemed to be out of order if the outstanding balance remains
continuously in excess of the sanctioned borrowing power or though the
outstanding balance remains below the sanctioned borrowing power, there have
been no credits in the account for a continuous period of more than 90 days prior
to the Balance Sheet date or where the credits have not been enough to cover the
interest debited during the same period. Therefore, an account is treated as 'out
of order' if any of the following conditions are satisfied:
(a) The outstanding balance remains continuously in excess of the sanctioned
limit/drawing power for a continuous period of 90 days prior to the Balance
Sheet date.
(b) Though the outstanding balance is less than the sanctioned limit/drawing
power –
(i) there have been no credits for a continuous period of more than 90
days prior to the date of balance sheet; or
(ii) credits during the aforesaid period are not enough to cover the interest
debited during the same period.
c) Further any amount due to the bank under any credit facility is ‘overdue’ if it
is not paid on the due date fixed by the bank.
Example of OUT OF ORDER
Sanctioned limit ` 60,00,000
Drawing power ` 55,00,000
Amount outstanding continuously from 1.01.20X1 to 31.03.20X1 ` 47,00,000
Total interest debited ` 3,42,000
Total credits ` 1,25,000

Since the credit in the account is not sufficient to cover the interest debited during
the period account will be said as NPA.
4. Agricultural Advances: Advances granted for agriculture purposes becomes
NPA if interest and/or installment of principal remains overdue for two crop
seasons in case of short duration crops and a loan granted for long duration
crops will be treated as NPA, if the installment of principal or interest thereon
remains overdue for one crop season. Crops having crop season of more than one
year i.e. upto the period of harvesting the crops raised will be termed as ‘long
duration” crops and other crops will be treated as “short duration” crops.
5. Securitisation transactions: Such transactions become NPA when the
amount of liquidity facility remains overdue for more than 90 days.
6. Derivative transactions: Such transactions become NPA when the overdue
receivables representing positive mark to market value of a derivative contract
remain unpaid for a period of 90 days from the specified due date for payment.
7. Government guaranteed advances: The credit facilities backed
by guarantee of the Central Government though overdue may be treated as NPA
only when the Government repudiates its guarantee when invoked. This exemption
from classification of Government guaranteed advances as NPA is not for the
purpose of recognition of income. The requirement of invocation of guarantee
has been delinked for deciding the asset classification and provisioning
requirements in respect of State Government guaranteed exposures. With effect
from the year ending 31 March 2006 State Government guaranteed advances and
investments in State Government guaranteed securities would attract asset
classification and provisioning norms if interest and/or principal or any other
amount due to the bank remains overdue for more than 90 days.
8. Advances to Staff: As in the case of project finance, in respect of housing
loans or similar advances granted to staff members where interest is payable after
recovery of principal, the overdue status (in respect of payment of interest) should
be reckoned from the date when there is default in payment of interest or
repayment of installment of principal on due date of payment.
9. Take-out Finance: In the case of take-out finance arrangement, the lending
bank should apply the prudential norms in the usual manner so long as the account
remains on its banks.

∗
Take-out finance is a product emerging in the context of the funding of long-term
infrastructure projects. Under this arrangement, the institution/bank financing the
infrastructure projects ('the lending institution') has an arrangement with a financial
institution ('the taking-over institution') for transferring to the latter the
outstanding in respect of such financing on a pre-determined basis. There are
several variants of take-out finance, but basically, they are either in the nature of
unconditional take-out finance or conditional take-out finance. In the latter case,
the taking-over institution stipulates certain conditions to be satisfied by the
borrower before it is taken over from the lending institution. Thus, in this variant of
take-over arrangements, there is an inherent element of uncertainty over the
ultimate transfer of the outstanding amount to the taking-over institution. For a
take-out finance arrangement to take effect, the borrower should also recognize
the arrangement by way of inter-creditor arrangement.
10. Advances Guaranteed by EXIM Bank: In the case of advances covered under
the guarantee-cum-refinance programme of EXIM Bank, to the extent payment has
been received by the bank from the EXIM Bank, the advance may not be treated
as NPA. The balance should, however, be treated as NPA (if the conditions for
treating it as NPA are satisfied).
11. Consortium Advances: Asset classification of accounts under consortium
should be based on the record of recovery of the individual member banks and
other aspects having a bearing on the recoverability of the advances. Where the
remittances by the borrower under consortium lending arrangements are pooled
with one bank and/or where the bank receiving remittances is not parting with the
share of other member banks, the account will be treated as not serviced in the
books of the other member banks and therefore, be treated as NPA. The
banks participating in the consortium should, therefore, arrange to get their share
of recovery transferred from the lead bank or get an express consent from the lead
bank for the transfer of their share of recovery, to ensure proper asset classification
in their respective books.
12. Advances Secured Against Certain Instruments: Advances secured against
term deposits, national savings certificates (NSCs) eligible for surrender, Indira
Vikas Patras, Kisan Vikas Patras and life insurance policies have been exempted
from the above guidelines. Thus, interest on such advances may be taken to income
account on due dates provided adequate margin is available in the respective
accounts. Advances against gold ornaments, government securities and all other
securities are not covered by this exemption.

4.1.1 Regularisation of Account by year-end

The identification of NPA is determined on the basis of day past due basis and the
same is reviewed at each reporting period. If an account has been regularised
before the balance sheet date by payment of overdue amount through genuine
sources (and not by sanction of additional facilities or transfer of funds between
accounts), the account need not be treated as NPA. The bank should, however,
ensure that the account remains in order subsequently. Also, a one of credit entry
made in the account on or before the balance sheet date which extinguished the
overdue amount of interest or instalment of principal is not reckoned as the sole
criterion for determining the status of the account as non-performing or otherwise.
Certain other important RBI guidelines with reference to NPAs are given below:-
(i) Temporary Deficiencies: The classification of an asset as NPA should be
based on the record of recovery. Bank should not classify an advance account as
NPA merely due to the existence of some deficiencies which are temporary in
nature such as non-availability of adequate drawing power based on the latest
available stock statement, balance outstanding exceeding the limit temporarily,
non-submission of stock statements and non-renewal of the limits on the due date,
etc. In the matter of classification of accounts with such deficiencies banks may
follow the following guidelines:
(a) Banks should ensure that drawings in the working capital accounts are
covered by the adequacy of current assets, since current assets are first
appropriated in times of distress. Drawing power is required to be arrived based on
the stock statement which is current. However, considering the difficulties of large
borrowers, stock statements relied upon by the banks for determining drawing
power should not be older than three months. The outstanding in the account
based on drawing power calculated from stock statements older than three months,
would be deemed as irregular.
A working capital borrower account will become NPA if such irregular drawings are
permitted in the account for a continuous period of 90 days even though the unit
may be working or the borrower's financial position is satisfactory.
(b) Regular and ad hoc credit limits need to be reviewed/ regularised not later
than three months from the due date/date of ad hoc sanction. In case of
constraints such as non-availability of financial statements and other data from the
borrowers, the branch should furnish evidence to show that renewal/ review of
credit limits is already on and would be completed soon. In any case, delay beyond

six months is not considered desirable as a general discipline. Hence, an account

where the regular/ ad hoc credit limits have not been reviewed/ renewed within
180 days from the due date/ date of ad hoc sanction will be treated as NPA.
(ii) Net Worth of Borrower/Guarantor or Availability of Security: Since
income recognition is based on recoveries from an advance account, net worth of
borrower/guarantor should not be taken into account for the purpose of treating
an advance as NPA or otherwise. Likewise, the availability of security is not relevant
for determining whether an account is NPA or not (this is, however, subject to
certain exceptions).
(iii) Determination of NPAs: Borrower-wise, Not Facility-wise: If any of the
credit facilities granted to a borrower becomes non-performing, all the facilities
granted to the borrower will have to be treated as NPA without any regard to
performing status of other facilities.
(iv) Partial Recoveries in NPAs: Interest partly realised in NPAs can be taken to
income. However, it should be ensured that the credits towards interest in the
relevant accounts are not out of fresh/additional credits facilities sanctioned to
borrowers concerned.
4.1.2 Interest Application
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. For the purpose of computing Gross
Advances, interest recorded in the Memorandum account should not be taken into
account.
In the account books of the bank, a customer’s loan account is debited with the
amount lent to him and the interest accrued thereon is also entered in the debit
side of his account. This procedure is followed when the financial position of the
customer is good and he will be in a position to return the money on maturity date;
the journal entry is :
Debit : Customer’s Loan Account

Credit : Interest Account

4.2 CLASSIFICATION OF BANK ADVANCES ON

BASIS OF PERFORMANCE
The Banks have to classify their advances into two broad groups:
1. Performing Assets
2. Non-Performing Assets
Performing assets are also called as Standard Assets. The Non-Performing Assets
is again classified into three groups and they are (i) sub-standard Assets (ii)
doubtful assets & (iii) Loss Assets.
Classification of Bank Advances
Performing Assets (Standard

Non Performing Assets
Assets)
Sub Standard
Doubtful Assets Loss Assets
Assets
Performing Assets:
Standard Assets - Standard assets are those which do not disclose any problems
and which does not carry more than normal risk attached to the business.
Non-Performing Assets (NPA):
(i) Sub-standard Assets –A Sub-standard asset is one which has been classified
as an NPA for a period not exceeding 12 months.
In such cases, the current net worth of the borrower/guarantor or the current
market value of the security charged is not enough to ensure recovery of the
dues to the bank in full. In other words, such an asset will have well-defined
credit weaknesses that jeopardise the repayment of the debt and are
characterised by the possibility that the bank would sustain some loss, if
deficiencies are not corrected.
(ii) Doubtful Assets - An asset would be classified as doubtful if it has remained
in the substandard category for a period of at least12 months. A loan
classified as doubtful has all the weaknesses inherent in assets that were

classified as sub-standard, with the added characteristic that the weaknesses

make collection or liquidation in full, – on the basis of currently known facts,
conditions and values – highly questionable and improbable.
As per RBI guideline, loan upon becoming an NPA would first be classified as
sub-standard for a period not exceeding 12 months and beyond that it would
have to be classified as DOUBTFUL. The doubtful assets are further
categorised into Doubtful-1, Doubtful-2 and Doubtful-3 on the basis of their
ageing from the date of classification of NPA.
(iii) Loss Assets - A loss asset is one where loss has been identified by the bank
or internal or external auditors or the RBI inspectors but the amount has
not been written off, wholly or partly. In other words, such an asset is
considered uncollectible or if collected of such little value that its continuance
as a bank asset is not warranted although there may be some salvage or
recovery value.
It may be noted that the above classification is meant for the purpose of
computing the amount of provision to be made in respect of advances and
not for the purpose of presentation of advances in the balance sheet. The
balance sheet presentation of advances is governed by the Third Schedule to
the Banking Regulation Act, 1949, which requires classification of advances
altogether differently.
Important Points:
1. Threats to Recovery: As per the guidelines, upon becoming NPA, a credit
facility would be classified first as sub-standard for a period not exceeding 12
months and then as doubtful. It has been clarified, however, that in respect of
accounts where there are potential threats to recovery on account of erosion in the
value of security or non-availability of security and existence of other factors such
as frauds committed by borrowers, it will not be prudent for banks to clarify them
first as sub-standard and thereafter as doubtful. Banks have been advised to classify
such accounts straightway as doubtful or loss assets, as appropriate irrespective
of the period for which the account has remained NPA.
2. Reschedulement / Restructuring /Renegotiation of Advances: Banks may
restructure the accounts classified under 'standard', 'sub-standard' and 'doubtful'
categories. However, Banks cannot reschedule / restructure /renegotiate any of the
borrowal accounts with retrospective effect. While a restructuring proposal is under
consideration, the usual asset classification norms would continue to apply. The
process of re-classification of an asset should not stop merely because

restructuring proposal is under consideration. The asset classification status as on

the date of approval of the restructured package by the competent authority would
be relevant to decide the asset classification status of the account after
restructuring / rescheduling / renegotiation.
No account will be taken up for restructuring by the banks unless the financial
viability is established and there is a reasonable certainty of repayment from the
borrower, as per the terms of restructuring package. The viability should be
determined by the banks based on the acceptable viability benchmarks determined
by them, which may be applied on a case-by-case basis.
The stages at which the restructuring/rescheduling/ renegotiation of the terms of
loan agreement can take place are as under:
(a) Before commencement of commercial production/operation;
(b) After commencement of commercial production/operation but before the
asset has been classified as sub-standard; and
(c) After commencement of commercial production/operation and after the
asset has been classified as sub-standard or doubtful.
The accounts classified as 'standard assets' should be immediately reclassified as
'sub-standard assets' upon restructuring (except for in certain cases). The non-
performing assets, upon restructuring, would continue to have the same asset
classification as prior to restructuring and slip into further lower asset classification
categories as per extant asset classification norms with reference to the pre-
restructuring repayment schedule (except for in certain cases). Any additional
finance may be treated as ‘standard asset’, up to a period of one year after the first
interest/principal payment, whichever is earlier, falls due under the approved
restructuring package. However, in case of accounts where the pre-restructuring
facility was classified as “sub-standard” and “doubtful”, interest income on the
additional finance should be recognized on cash basis only. If the restructured asset
does not qualify for upgradation at the end of the above specified one year period,
the additional finance shall be placed in the same asset classification category as
the restructured debt.
All restructured accounts which have been classified as non-performing assets
upon restructuring, would be eligible for up-gradation to the ‘standard’ category
after observation of ‘satisfactory performance’ during the ‘specified period’. In
case, however, satisfactory performance after the specified period is not evidenced,
the asset classification of the restructured account would be governed as per the

applicable prudential norms with reference to the pre-restructuring payment

schedule.
While reviewing the prudential guidelines on restructuring of advances by banks/
financial institutions, Reserve Bank of India has decided the following*:
(i) To enhance the provisioning requirement for restructured accounts classified
as standard advances from the existing 2.00 per cent to 2.75 per cent in the first
two years from the date of restructuring. In cases of moratorium on payment of
interest/principal after restructuring, such advances will attract a provision of 2.75
per cent for the period covering moratorium and two years thereafter; and that
(ii) Restructured accounts classified as non-performing advances, when
upgraded to standard category will attract a provision of 2.75 per cent in the first
year from the date of upgradation instead of the existing 2.00 per cent.
In accordance with the above, loans to projects under implementation, when
restructured due to change in the date of commencement of commercial
operations (DCCO) beyond the original DCCO as envisaged at the time of financial
closure and classified as standard advances in terms of guidelines contained in RBI
circular DBOD.No.BP.BC.85 /21.04.048/2009-10 dated March 31, 2010, would
attract higher provisioning at 2.75 per cent as against the present requirement of
2.00 per cent as per the details given below:
Infrastructure projects
Particulars Provisioning Requirement

If the revised DCCO is within two years from the 0.40 per cent
original DCCO prescribed at the time of financial
closure
If the DCCO is extended beyond two years and 2.75 percent from the date of
upto four years or three years from the original such restructuring till the
DCCO, as the case may be, depending upon the revised DCCO or 2 years from
reasons for such delay (Ref.: DBOD.No.BP.BC.85/ the date of restructuring,
21.04.048/2009-10 dated March 31, 2010) whichever is later.
Non-infrastructure projects
Particulars Provisioning Requirement

If the revised DCCO is within six months from the 0.40 per cent
original DCCO prescribed at the time of financial
closure

If the DCCO is extended beyond six months and 2.75percent from the date of
upto one year from the original DCCO prescribed such restructuring for 2 years.
at the time of financial closure (Ref.:
DBOD.No.BP.BC.85/21.04.048/2009-10 dated
March 31, 2010)
* vide circular no.DBOD.No.BP.BC.63/21.04.048/2012-13 dated November 26, 2012.

These norms are applicable for all scheduled commercial banks excluding RRBs.
Circular No. DBOD.No.BP.BC.33/21.04.048/2014-15 dated 14 August, 2014, states
that: revisions of the date of commencement of commercial operations (DCCO) and
consequential shift in repayment schedule for equal or shorter duration (including
the start date and end date of revised repayment schedule) will not be treated as
restructuring provided that:
(a) The revised DCCO falls within the period of two years and one year from the
original DCCO stipulated at the time of financial closure for infrastructure
projects and non-infrastructure projects respectively; and
(b) All other terms and conditions of the loan remain unchanged.
4.3 PROVISIONS
Taking into account the time lag between an asset becoming substandard/doubtful
turning into loss asset, RBI has directed that bank should make provision against
all assets (i.e) Loans & advances as follows:
Rates of Provisioning for Non-Performing Assets ϒ
Standard Assets
(i) The bank requires to make a general provision for standard assets at the
following rates for the funded outstanding on global loan portfolio basis. The
general provision towards standard assets as per Master circular is as follows:
(1) direct advances to agricultural and Small and Micro Enterprises (SMEs)
sectors at 0.25 per cent;
(2) advances to Commercial Real Estate (CRE) Sector at 1.00 per cent;
ϒ
As per Master Circular DBOD.No.BP.BC.1/21.04.048/2014-15 dated July 1, 2014.

(3) Advances to Commercial Real Estate – Residential Housing Sector (CRE

- RH) at 0.75 per cent;
(4) Housing loans extended at lesser rates – 2.00%. The provisioning on
these assets would revert to 0.40 per cent after 1 year from the date on
which the rates are reset at higher rates if the accounts remain
‘standard’;
(5) Restructured accounts classified as standard advances will attract a
higher provision (as prescribed from time to time) in the first two years
from the date of restructuring. In cases of moratorium on payment of
interest/principal after restructuring, such advances will attract the
prescribed higher provision for the period covering moratorium and
two years thereafter.
Restructured accounts classified as non-performing advances, when
upgraded to standard category will attract a higher provision (as
prescribed from time to time) in the first year from the date of upgradation.
(6) All other loans and advances not included above - 0.40%
(ii) It is clarified that the Medium Enterprises will attract 0.40% standard asset
provisioning. The definition of the terms Micro Enterprises, Small Enterprises,
and Medium Enterprises shall be in terms of Master Circular on Lending to
Micro, Small & Medium Enterprises (MSME) Sector.
(iii) While the provisions on individual portfolios are required to be calculated at
the rates applicable to them, the excess or shortfall in the provisioning, vis-
a-vis the position as on any previous date, should be determined on an
aggregate basis.
(iv) The provisions on standard assets should not be reckoned for arriving at net
NPAs. The provisions towards Standard Assets need not be netted from gross
advances but included as 'Contingent Provisions against Standard Assets' under
'Other Liabilities and Provisions - Others' in Schedule 5 of the balance sheet.
Rates of Provisioning for Sub- standard, Doubtful and Loss Advances are as
follows:
Category of Advances- Revised

Rate (%)
Sub- standard Advances
• Secured Exposures 15

• Unsecured Exposures 25
• Unsecured Exposures in respect of Infrastructure loan accounts 20
where certain safeguards such as escrow accounts are available.
Doubtful Advances – Unsecured Portion 100
Doubtful Advances – Secured Portion
• For Doubtful upto 1 year 25
• For Doubtful > 1 year and upto 3 years 40
• For Doubtful > 3 years 100
Loss Advances 100
Accounting and Provisioning Norms for Equipment Leasing Activity: While the
accounting and provisioning norms discussed above shall also apply in respect of
equipment leasing activities. The bank should follow the Accounting Standard 19
on “Leases” in accounting for lease transactions.
Note: -
1. The provisions on standard assets should not be reckoned for arriving at net
NPAs.
2. The provisions towards Standard Assets need not be netted from gross advances
but shown separately as 'Contingent Provisions against Standard Assets' under
'Other Liabilities and Provisions’ in Schedule 5 of the balance sheet.
Note: Since no bank is likely to extend any loans or advances without adequate
security, it is prudent to assume in the questions that even in the case of
substandard or doubtful or loss assets, the same are secured unless the question
specifically mentions otherwise.
Illustration 1
The outstanding amount (funded as well as unfunded) as on 31st March, 20X1 was:
` 10,000. The realizable value of security of the same was`8,000.
Period for which the advance has remained in ‘doubtful’ category as on 31 st March,
20X1 was: 2.5 years.
Show the provisions required for the financial years ended 31 March 20X1 and
31 March 20X2.

Solution
Provisioning requirement:
As on… Asset Classification Provisions on Provisions on Total
secured portion unsecured (` )
portion
% Amount % Amount
31 March, 20X1 Doubtful 1 to 3 years 40 3,200 100 2,000 5,200
31 March, 20X2 Doubtful more than 3 100 8,000 100 2,000 10,000
years
Note: The secured portion of the outstanding loan is ` 8,000 and unsecured portion is
` 2,000.
Illustration 2
From the following information, find out the amount of provisions to be shown in the
Profit and Loss Account of AG bank.
` in lakhs
Assets
Standard 5000
Sub-standard 4000
Doubtful : for one year 800
: for three years 600
: for more than three years 200
Loss Assets 1000
Solution
Computation of provisions for AG Bank
Assets Amount % of Provision

` in lakhs provision ` in lakhs
Standard 50,00 0.4 20
Substandard* 40,00 15 600
Doubtful for one year* 8,00 25 200

Doubtful for three years* 6,00 40 240

Doubtful for more than three years 2,00 100 200
Loss 10,00 100 1,000
Total Provision required 2,260
*All the marked sub-standard and doubtful assets are assumed as fully secured.
Illustration 3
From the following information of AY Limited, compute the provisions to be made in
the Profit and Loss account:
` in lakhs
Assets
Standard 20,000
Substandard 16,000
Doubtful
For one year (secured) 6,000
For two years and three years (secured) 4,000
For more than three years (secured by mortgage of plant 2,000
and machinery ` 600 lakhs)
Loss Assets 1,500
Solution
Calculation of amount of provision to be made in the Profit and Loss
Account
Classification of Assets Amount of % age of Amount of

Advances provision provision
(` in lakhs) (` in lakhs)
Standard assets 20,000 0.40 80
Sub-standard assets 16,000 15 2,400
Doubtful assets:
For one year (secured) 6,000 25 1,500
For two to three years (secured) 4,000 40 1,600

For more than three years (unsecured) 1,400 100 1,400

(secured) 600 100 600
Non-recoverable assets (Loss assets) 1,500 100 1,500
Total provision required 9,080
4.3.1 Provisioning for advances covered by ECGC/DICGC guarantee

In the case of advances guaranteed by Export Credit Guarantee Corporation (ECGC)
or Deposit Insurance Credit Guarantee Corporation (DICGC), provision is required
to be made only for the balance amount of advance outstanding in excess of the
amount guaranteed by the corporations. In case the bank also holds a security in
respect of an advance guaranteed by ECGC/DICGC, the realisable value of the
security should be deducted from the outstanding balance before the ECGC/DICGC
guarantee is off-set. The Reserve Bank of India has also clarified that if the banks
are following more stringent method of provisioning in respect of advances
guaranteed by ECGC/DICGC, such banks may continue to do so.
The manner of determining the amount of provision in respect of ECGC/DICGC
guaranteed advances in accordance with the above guidelines is illustrated below.
(It may be noted that these illustrations are merely intended to facilitate
understanding of the RBI guidelines; they have not been issued by the RBI.)
Illustration 4
Outstanding Balance ` 4 lakhs

ECGC Cover 50%
Period for which the advance has More than 3 years remained doubtful
remained doubtful (as on March 31, 20X1)
Value of security held ` 1.50 lakhs
You are required to calculate provisions.
Solution
Provision required to be made as on 31.03.20X1
Outstanding balance `4.00 lakhs

Less: Value of security held (Secured Portion) (`1.50 lakhs)
Unrealised balance `2.50 lakhs
Less: ECGC Cover (50% of unrealizable (`1.25 lakhs)
balance)

Net unsecured balance `1.25 lakhs

Provision for unsecured portion of advance `1.25 lakhs (@ 100% of
unsecured portion)
Provision for secured portion of advance `1.50 lakhs
(@ 100% of the secured portion
as advance has remained
doubtful for over 3 years)
Total provision to be made ` 2.75 lakhs
Illustration 5
Outstanding Balance ` 4 lakhs

ECGC Cover 50%
Period for which the advance has remained More than 3 years remained
doubtful doubtful (as on March 31, 20X1)
Value of security held (realizable value only ` 1.50 lakhs
80%)
You are required to calculate provisions as per applicable rates.

Solution
Provision required to be made as on 31.03.20X1
Outstanding balance ` 4.00 lakhs
Less: Value of security held (80% of 1.5 lacs) (` 1.20 lakhs)
Unrealized balance ` 2.80 lakhs
Less: ECGC Cover (50% of unrealizable balance) (` 1.40 lakhs)
Net unsecured balance ` 1.40 lakhs
Provision for unsecured portion of advance ` 1.40 lakhs (@ 100% of unsecured
portion)
Provision for secured portion of advance ` 1.20 lakhs (@ 100% of the
secured portion)
Total provision to be made ` 2.60 lakhs

Illustration 6
In KR Bank, the doubtful assets (more than 3 years) as on 31.3.20X1 is `1,000 lakhs.
The value of security (including DICGC 100% cover of `100 lakhs) is ascertained at
` 500 lakhs. How much provision must be made in the books of the Bank towards
doubtful assets?
Solution
(`in lakhs)
Doubtful Assets (more than 3 years) 1,000
Less: Value of security (excluding DICGC cover) (400)
600
Less: DICGC cover (100)
Unsecured portion 500
Provision:
for unsecured portion @100% 500 lakhs
for secured portion @ 100% 400 lakhs
Total provision to be made in the books of KR Bank 900 lakhs
Illustration 7
A loan outstanding of ` 50,00,000 has DICGC cover. The loan guaranteed by DICGC
is assigned a risk weight of 50%. What is the value of Risk-adjusted asset?
Solution
Loan outstanding ` 50,00,000

Guaranteed by DICGC – Risk weight 50%
Value of risk adjusted asset `.50,00,000 × 50% = ` 25,00,000
Principle for creation of floating provisions
The Master Circular dated July 1, 2013 on Income Recognition, Asset Classification
and Provisioning Pertaining to Advances, requires the bank's board of directors to
lay down a policy regarding the level to which the floating provisions can be
created. The bank should hold floating provisions for ‘advances’ and ‘investments’
separately.
The floating provisions should not be used for making specific provisions as per
the extant prudential guidelines in respect of nonperforming assets or for making

regulatory provisions for standard assets. The floating provisions can be used only
for contingencies under extraordinary circumstances for making specific provisions
in impaired accounts after obtaining board’s approval and with prior permission of
RBI. The boards of the banks should lay down an approved policy as to what
circumstances would be considered extraordinary.
Floating provisions cannot be reversed by credit to the profit and loss account.
They can only be utilised for making specific provisions in extraordinary
circumstances as mentioned above. Until such utilisation, these provisions can be
netted off from gross NPAs to arrive at disclosure of net NPAs. Alternatively, they
can be treated as part of Tier II capital within the overall ceiling of 1.25 % of total
risk weighted assets.
Disclosures: Banks should make comprehensive disclosures on floating provisions
in the “notes on accounts” to the balance sheet on (a) opening balance in the
floating provisions account, (b) the quantum of floating provisions made in the
accounting year, (c) purpose and amount of draw down made during the
accounting year, and (d) closing balance in the floating provisions account.
Write-off of NPAs: Banks may write-off advances at Head Office level, even though
the advances are still outstanding in the branch books. At the branch level,
provision requirement as per classification norms shall be made and in respect of
loss assets 100% provision shall be made. There can be partial write off relating to
the borrower's account in head office.
4.4 CLASSIFICATION OF INVESTMENTS

A unique feature of investments of a bank is that a large proportion of the
investments is made in pursuance of the requirement to maintain a certain
minimum level of liquid assets 1. The directions issued by RBI from time to time
affect the methods of classification of investments. The entire investment portfolio
of a bank (including SLR securities and non- SLR securities) should be classified
under three categories:
To maintain SLR
1

Types of Investments
HTM HFT AFS

Securities acquired by banks Securities acquired by Securities which do
with the intention to hold banks with the not fall within the
them upto maturity should intention to trade by above two
be classified as ‘held-to- taking advantage of categories should
maturity’. short-term be classified as
Max limit 25% of the total price/interest rate ‘available-for-sale’
investments, though a bank movements should be
can at its discretion hold less classified as ‘held-for-
than the aforesaid trading’
percentage under this
category.
25%
75% of the total
Held-to-Maturity, (HTM): Securities acquired by banks with the intention to hold

them upto maturity should be classified as HTM.
Held-for-Trading (HFT): Securities acquired by banks with the intention to trade

by taking advantage of short-term price/interest rate movements should be
classified as ‘held-for-trading’.
Available-for-Sale (AFS): Securities which do not fall within the above two
categories should be classified as ‘available-for-sale’.
The banks will have the freedom to decide on the extent of holdings under HFT and
AFS. This will be decided by them after considering various aspects such as basis
of intent, trading strategies, risk management capabilities, tax planning, manpower
skills or capital position. The investment classified under HFT would be those from
which the bank expects to make again by the movement in the interest
rates/market rates. These securities are to be sold within 90 days. Profit or loss on
sale of investments in both the categories will be taken to the Profit and Loss
Account.

SLR holdings in Held to Maturity (HTM category)

(vide circular no. RBI/2020-21/94 DOR.No.MRG.BC.39/21.04.141/2020-21 dated
February 5, 2021)
In reference to Statement on Developmental and Regulatory Policies dated
February 5, 2021 and RBI circular DoR.No.BP.BC.22/21.04.141/2020-21 dated
October 12, 2020, banks are permitted to exceed the limit of 25 per cent of the
total investments under Held to Maturity (HTM) category provided:
(a) the excess comprises only of SLR securities; and
(b) total SLR securities held under HTM category is not more than 19.5 per cent
of Net Demand and Time Liabilities (NDTL) as on the last Friday of the second
preceding fortnight.
With respect to the limit stated in point (b) above, banks have been granted a
special dispensation of enhanced HTM limit of 22 per cent of NDTL, for SLR
securities acquired between September 1, 2020 and March 31, 2021, until March
31, 2022. The enhanced limit was required to be restored in a phased manner over
three quarters beginning with the quarter ending June 30, 2022.
It has now been decided to extend the dispensation of enhanced HTM of 22 per
cent to March 31, 2023 to include SLR securities acquired between April 1, 2021
and March 31, 2022. Thus, banks may exceed the limit specified in point (b) above
upto 22 per cent of NDTL (instead of 19.5 per cent of NDTL) till March 31, 2023,
provided such excess is on account of SLR securities acquired between September
1, 2020 and March 31, 2022.
The schedule for restoring the enhanced HTM limit to 19.5 per cent of NDTL
specified in the circular dated October 12, 2020 referred to above is accordingly
modified. The enhanced HTM limit shall be restored to 19.5 percent in a phased
manner, beginning from the quarter ending June 30, 2023, i.e. the excess SLR
securities acquired by banks during the period September 1, 2020 to March 31,
2022 shall be progressively reduced from the HTM category such that the total SLR
securities under the HTM category as a percentage of the NDTL does not exceed:
(a) 21.00 per cent as on June 30, 2023
(b) 20.00 per cent as on September 30, 2023
(c) 19.50 per cent as on December 31, 2023
As per extant instructions, banks may shift investments to/from HTM with the
approval of the Board of Directors once a year and such shifting will normally be

allowed at the beginning of the accounting year. However, in order to enable banks
to shift their excess SLR securities from the HTM category to available for sale (AFS)/
held for trading (HFT) to comply with the instructions as indicated above, it has
been decided to allow such shifting of the excess securities during the quarter in
which the HTM ceiling is brought down. This would be in addition to the shifting
permitted at the beginning of the accounting year.
Sale of Securities held in Held to Maturity (HTM) Category: Accounting
treatment
Investments by Primary (Urban) Co-operative Banks (UCBs) if securities acquired by
banks with the intention to hold them up to maturity will be classified under HTM
category. As per Circular no. RBI/2018-19/205 DCBR.BPD. (PCB)
Cir.No.10/16.20.000/2018-19 dated 10th June, 2019, it is reiterated that UCBs are
not expected to resort to sale of securities held in HTM category. However, if due
to liquidity stress, UCBs are required to sell securities from HTM portfolio, they may
do so with the permission of their Board of Directors and rationale for such sale
may be clearly recorded.
Profit on sale of investments from HTM category shall first be taken to the Profit
and Loss account and, thereafter, the amount of such profit shall be appropriated
to ‘Capital Reserve’ from the net profit for the year after statutory appropriations.
Loss on sale shall be recognized in the Profit and Loss account in the year of sale.
4.5 SHIFTING AMONG CATEGORIES OF

INVESTMENTS
(i) Banks may shift investments to/from HTM with the approval of the Board of
Directors once a year. Such shifting will normally be allowed at the beginning
of the accounting year. No further shifting to/from HTM will be allowed
during the remaining part of that accounting year, except when explicitly
permitted by RBI.
(ii) If the value of sales and transfers of securities to/from HTM category exceeds
5 per cent of 31 Prudential Norms on Investments - 2015 the book value of
investments held in HTM category at the beginning of the year, banks should
disclose the market value of the investments held in the HTM category and
indicate the excess of book value over market value for which provision is not
made. This disclosure is required to be made in ‘Notes to Accounts’ in banks’
audited Annual Financial Statements. However, the one-time transfer of
securities to/from HTM category with the approval of Board of Directors

permitted to be undertaken by banks at the beginning of the accounting year.

Further, additional shifting of securities explicitly permitted by the Reserve
Bank from time to time, direct sales from HTM for bringing down SLR
holdings in HTM category, sales to the Reserve Bank of India under pre-
announced OMO auctions and repurchase of Government securities by
Government of India from banks will be excluded from the 5 per cent cap.
(iii) Banks may shift investments from AFS to HFT with the approval of their Board of
Directors/ ALCO/ Investment Committee. In case of exigencies, such shifting may
be done with the approval of the Chief Executive of the bank/Head of the ALCO,
but should be ratified by the Board of Directors/ ALCO.
(iv) Shifting of investments from HFT to AFS is generally not allowed. However, it
will be permitted only under exceptional circumstances like not being able to
sell the security within 90 days due to tight liquidity conditions, or extreme
volatility, or market becoming unidirectional. Such transfer is permitted only
with the approval of the Board of Directors/ ALCO/ Investment Committee.
(v) Transfer of scrips from AFS / HFT category to HTM category should be made
at the lower of book value or market value. In other words, in cases where the
market value is higher than the book value at the time of transfer, the
appreciation should be ignored and the security should be transferred at the
book value. In cases where the market value is less than the book value, the
provision against depreciation held against this security (including the
additional provision, if any, required based on valuation done on the date of
transfer) should be adjusted to reduce the book value to the market value
and the security should be transferred at the market value.
In the case of transfer of securities from HTM to AFS / HFT category,
(a) If the security was originally placed under the HTM category at a discount, it
may be transferred to AFS / HFT category at the acquisition price / book value.
(It may be noted that as per existing instructions banks are not allowed to
accrue the discount on the securities held under HTM category and, therefore,
such securities would continue to be held at the acquisition cost till maturity).
After transfer, these securities should be immediately re-valued and resultant
depreciation, if any, may be provided.
(b) If the security was originally placed in the HTM category at a premium, it may
be transferred to the AFS / HFT category at the amortised cost. After transfer,
these securities should be immediately re-valued and resultant depreciation,
if any, may be provided.

In the case of transfer of securities from AFS to HFT category or vice-versa, the
securities need not be re-valued on the date of transfer and the provisions for the
accumulated depreciation, if any, held may be transferred to the provisions for
depreciation against the HFT securities and vice-versa.
4.6 VALUATION OF INVESTMENTS

The Banks are required to classify investments into three categories:
(a) Held-to-Maturity,
(i) Investments classified under held-to-maturity category need not be marked
to market. They should be carried at acquisition cost unless it is more than
the face value, in which case the premium should be amortised over the
period remaining to maturity.
(ii) The bank should reflect the amortised amount in Schedule 13: Interest Earned
– Item II ‘Income on Investments’ as a deduction. However, the deduction
need not be disclosed separately. The book value of the securities should
continue to be reduced to the extent of the amount amortised during the
relevant accounting period.
(iii) As per AS 13- only permanent diminution in the value of such investments
under held-to-maturity category should be provided for. Such diminution
should be determined and provided for each investment individually
(b) Available-for-sale: The individual scrips in the available-for-sale category
should be marked to market quarterly or at more frequent intervals.
While the net depreciation under each of the categories (required by third schedule
to Banking Regulation Act, 1949) should be recognised and fully provided for, the
net appreciation under any of the aforesaid categories above should be ignored.
Thus, banks can offset gains in respect of some investments marked-to-market
within a category against losses in respect of other investments marked-to-market
in that category.
The guidelines however, do not permit offsetting of gains and losses across
different categories. The book value of the individual securities would not have
undergone any change after the marking to market. In other words, the
depreciation or appreciation in value of individual scrips in accordance with the

above methodology would not be credited to individual scrip accounts but would
be held collectively in a separate account.
(c) Held-for-trading: The individual scrips in the ‘held-for-trading’ category
should be marked to market at monthly or at more frequent intervals and provided
for as in the case of those in the ‘Available for sale’ category.
Consequently, the book value of the individual securities in this category would
also not undergo any change after marking to market.
Prudential Norms for Classification, Valuation and Operation of Investment
Portfolio by Banks
As per Circular no. RBI/2018-19/204 DBR.No.BP.BC.46/21.04.141/2018-19 dated
10th June, 2019 (referring to RBI circular DBR No BP.BC.6/21.04.141/2015-16 dated
July 1, 2015 advising banks that if the value of sales and transfer of securities to /
from HTM category exceeds 5 per cent of the book value of investments held in
HTM category at the beginning of the year) banks should disclose the market value
of the investments held in the HTM category and indicate the excess of book value
over market value for which provision is not made. Apart from transactions that
are already exempted from inclusion in the 5 per cent cap, it has been decided that
repurchase of State Development Loans (SDLs) by the concerned state government
shall also be exempted.
Banks are required to follow AS 13 ‘Accounting for Investments’ issued by the ICAI
relating to long-term investments for valuation of investments in subsidiaries. In
terms of AS 13, long term investments should be arrived in the financial statements
at carrying cost. However, provision for diminution shall be made to recognise a
decline other than temporary, in the value of the investments, such reduction being
determined and made for each investment individually.
4.7 INVESTMENT FLUCTUATION RESERVE

(i) With a view to building up of adequate reserves to guard against any possible
reversal of interest rate environment in future due to unexpected
developments, banks were advised to build up Investment Fluctuation
Reserve (IFR) of a minimum 5 per cent of the investment portfolio within a
period of 5 years.
(ii) To ensure smooth transition to Basel II norms, banks are advised to maintain
capital charge for market risk in a phased manner over a two year period, as
under:

(a) In respect of securities included in the HFT category, open gold position
limit, open foreign exchange position limit, trading positions in
derivatives and derivatives entered into for hedging trading book, and
(b) In respect of securities included in the AFS category.
(iii) With a view to encourage banks for early compliance with the guidelines for
maintenance of capital charge for market risks, banks which have maintained
capital of at least 9 per cent of the risk weighted assets for both credit risk
and market risks for both HFT (items as indicated at (a) above) and AFS
category may treat the balance in excess of 5 per cent of securities included
under HFT and AFS categories, in the IFR, as Tier I capital. Banks satisfying the
above were allowed to transfer the amount in excess of the said 5 per cent in
the IFR to Statutory Reserve.
(iv) Banks maintaining capital of at least 9 per cent of the risk weighted assets for
both credit risk and market risks for both HFT (items as indicated at (a) above)
and AFS category would be permitted to treat the entire balance in the IFR as
Tier I capital. For this purpose, banks may transfer the balance in the
Investment Fluctuation Reserve ‘below the line’ in the Profit and Loss
Appropriation Account to Statutory Reserve, General Reserve or balance of
Profit & Loss Account.
(v) Investment Reserve Account (IRA): In the event, provisions created on
account of depreciation in the ‘AFS’ or ‘HFT’ categories are found to be in
excess of the required amount in any year, the excess should be credited to
the Profit & Loss account and an equivalent amount (net of taxes, if any and
net of transfer to Statutory Reserves as applicable to such excess provision)
should be appropriated to an IRA Account in Schedule 2 – “Reserves &
Surplus” under the head “Revenue and other Reserves”, and would be eligible
for inclusion under Tier-II within the overall ceiling of 1.25 per cent of total
Risk Weighted Assets prescribed for General Provisions/ Loss Reserves.
(vi) Banks may utilise IRA as follows:The provisions required to be created on
account of depreciation in the AFS and HFT categories should be debited to
the P&L Account and an equivalent amount (net of tax benefit, if any, and net
of consequent reduction in the transfer to Statutory Reserve), may be
transferred from the IRA to the P&L Account.
Illustratively, banks may draw down from the IRA to the extent of provision
made during the year towards depreciation in investment in AFS and HFT
categories (net of taxes, if any, and net of transfer to Statutory Reserves as

applicable to such excess provision). In other words, a bank which pays a tax
of 30% and should appropriate a prescribed percentage of the net profits to
Statutory Reserves, can draw down `52.50 from the IRA, if the provision made
for depreciation in investments included in the AFS and HFT categories is
` 100.
(vii) The amounts debited to the P&L Account for provision should be debited
under the head ‘Expenditure - Provisions & Contingencies’. The amount
transferred from the IRA to the P&L Account, should be shown as ‘below the
line’ item in the Profit and Loss Appropriation Account, after determining the
profit for the year. Provision towards any erosion in the value of an asset is
an item of charge on the profit and loss account, and hence should appear in
that account before arriving at the profit for the accounting period.
(viii) In terms of our guidelines on payment of dividend by banks, dividends should
be payable only out of current year's profit. The amount drawn down from
the IRA will, therefore, not be available to a bank for payment of dividend
among the shareholders. However, the balance in the IRA transferred ‘below
the line’ in the Profit and Loss Appropriation Account to Statutory Reserve,
General Reserve or balance of Profit & Loss Account would be eligible to be
reckoned as Tier I capital.
4.8 DISCLOSURE REQUIREMENTS ON ADVANCES

RESTRUCTURED BY BANKS AND FINANCIAL
INSTITUTIONS
Reserve of India has framed Disclosure Requirements on Advances Restructured by
Banks and Financial Institutions.
The Prudential norms on Income Recognition, Asset Classification and Provisioning
pertaining to Advances states manner in terms of which banks should disclose in
their published Annual Balance Sheets, under "Notes on Accounts", information
relating to number and amount of advances restructured, and the amount of
diminution in the fair value of the restructured advances under the categories-
Standard; Sub-Standard; and Doubtful Advances. Under each category, advances
restructured under CDR Mechanism, SME Debt Restructuring Mechanism and other
categories of restructuring are required to be shown separately.

The Working Group (WG) constituted by RBI to review the existing Prudential
Guidelines on Restructuring of Advances had recommended that once the higher
provisions and risk weights (if applicable) on restructured advances revert back to
the normal level on account of satisfactory performance during the prescribed
period, such advances should no longer be required to be disclosed by banks as
restructured accounts in the “Notes on Accounts” in their Annual Balance Sheets.
However, the provision for diminution in the fair value of restructured accounts on
such restructured accounts should continue to be maintained by banks as per the
existing instructions. The WG also recommended that banks may be required to
disclose: (i) Details of accounts restructured on a cumulative basis excluding the
standard restructured accounts which cease to attract higher provision and risk
weight (if applicable); (ii) Provisions made on restructured accounts under various
categories; and (iii) Details of movement of restructured accounts.
This recommendation has been accepted in view of the fact that in terms of present
guidelines, banks are required to disclose annually all accounts restructured in their
books on a cumulative basis even though many of them would have subsequently
shown satisfactory performance over a sufficiently long period. As such the present
position of disclosures do not take into account the fact that in many of these
accounts the inherent weaknesses have disappeared and the accounts are in fact
standard in all respects, but continue to be disclosed as restructured advances.
Accordingly, banks should henceforth disclose in their published Annual Balance
Sheets, under "Notes on Accounts", information relating to number and amount of
advances restructured, and the amount of diminution in the fair value of the
restructured advances as per the prescribed format. Detailed instructions relating
to the disclosure are also given in the format.

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8.

UNIT 4: INCOME RECOGNITION, CLASSIFICATION

In this unit, you will be able to:

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4.1 INCOME RECOGNITION

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classification of advances between performing and non-performing assets which

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© The Institute of Chartered Accountants of India

4.1.1 Regularisation of Account by year-end

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six months is not considered desirable as a general discipline. Hence, an account

Debit : Customer’s Loan Account

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4.2 CLASSIFICATION OF BANK ADVANCES ON

Classification of Bank Advances

Performing Assets (Standard

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classified as sub-standard, with the added characteristic that the weaknesses

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restructuring proposal is under consideration. The asset classification status as on

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applicable prudential norms with reference to the pre-restructuring payment

Particulars Provisioning Requirement

Particulars Provisioning Requirement

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* vide circular no.DBOD.No.BP.BC.63/21.04.048/2012-13 dated November 26, 2012.

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(3) Advances to Commercial Real Estate – Residential Housing Sector (CRE

Category of Advances- Revised

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Assets Amount % of Provision

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Doubtful for three years* 6,00 40 240

Classification of Assets Amount of % age of Amount of

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For more than three years (unsecured) 1,400 100 1,400

4.3.1 Provisioning for advances covered by ECGC/DICGC guarantee

Outstanding Balance ` 4 lakhs

Outstanding balance `4.00 lakhs

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Net unsecured balance `1.25 lakhs

Outstanding Balance ` 4 lakhs

You are required to calculate provisions as per applicable rates.

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Loan outstanding ` 50,00,000

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4.4 CLASSIFICATION OF INVESTMENTS

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HTM HFT AFS

Held-to-Maturity, (HTM): Securities acquired by banks with the intention to hold

Held-for-Trading (HFT): Securities acquired by banks with the intention to trade

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SLR holdings in Held to Maturity (HTM category)

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4.5 SHIFTING AMONG CATEGORIES OF