IndigoLearn

Forums

Provision for substandard assets

Sir, In the lecture it is told that if the substandard asset is unsecured and it is taken for infrastructure development and also supported by escrow, the provision need to be made is 20%. Here I remember that i have read(in adv. accounts) the unsecured loan taken for infrastructure development needs a provision of 20%, and there is no concept of escrow. So, i want to make clear that, the provision for unsecured loan taken for infrastructure development but not supported with escrow. Is 20% or 25%. In other words whether the escrow should be compulsory for the infrastructure loan to have the provision of 20%.


Sakthi Praveen

Sakthi Praveen

CA Inter

2K+

21-Jul-20

113

Answers (1)

Sub-standard assets (i) if secured exposures/assets (security value > 10% of advance) - 15% (ii) Unsecured exposure (a) Infrastructure project backed with escrow account - 20% (b) others - 25% To come under 20% provision the infrastructure projects have to fulfill the condition of escrow as given in RBI notification DBOD.No.BP.BC.96/08.12.014/2009-10 dated April 23, 2010, which states "To avail of this benefit of lower provisioning, the banks should have in place an appropriate mechanism to escrow the cash flows and also have a clear and legal first claim on these cash flows. " So if there is no escrow then it will need 25% provisioning


sudha reddy

sudha reddy

Moderator

21-Jul-20

Inter Testimonials
Testimonials CA Foundation July 21
Excel Launch
Study Planner
Business Law - CA Foundation
Fundamentals of Blockchain
Quote
Financial Modelling
Refer
EMI
Past_Exams
Tally + Excel Free
Tally Prime