Provisioning pertaining to Fraud Loan Accounts for Banks: RBI

RBI/2014–15/535
DBR.No.BP.BC.83/21.04.048/2014–15 April 1, 2015

Pro­vi­sion­ing per­tain­ing to Fraud Accounts

Please refer to the guide­lines com­piled in para­graph 4.2.9 of Mas­ter Cir­cu­lar on Pru­den­tial Norms on Income Recog­ni­tion, Asset Clas­si­fi­ca­tion and Pro­vi­sion­ing per­tain­ing to Advances dat­ed July 1, 2014, in terms of which, in accounts where there are poten­tial threats for 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, the asset clas­si­fi­ca­tion, and con­se­quent pro­vi­sion­ing, depends upon the real­is­able val­ue of security.

2. On a review, it has been decid­ed to pre­scribe a uni­form pro­vi­sion­ing norm in respect of all cas­es of fraud, as under:

1. 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;
2. How­ev­er, where there has been delay, beyond the pre­scribed peri­od, in report­ing the fraud to the Reserve Bank, the entire pro­vi­sion­ing is required to be made at once. In addi­tion, Reserve Bank of India may also ini­ti­ate appro­pri­ate super­vi­so­ry action where there has been a delay by the bank in report­ing a fraud, or pro­vi­sion­ing thereagainst.

3. We reit­er­ate that banks must scrupu­lous­ly adhere to the guide­lines con­tained in cir­cu­lar DBS.CO.CFMC.BC.No.1/23.04.001/2014–15 dat­ed July 1, 2014 on ‘Frauds – Clas­si­fi­ca­tion and Reporting’.

Yours faith­ful­ly,

(Sudar­shan Sen)
Chief Gen­er­al Manager-in-Charge