M/s. TZ and Associates are appointed as a statutory branch auditors of the Delhi Branch of ABC Bank Limited for the F.Y. 2024-25. CA T is the…

Restructuring of Advances: (i) Restructuring is an act in which a lender, for economic or legal reasons relating to borrower's financial difficulty, grants concessions to the borrower. It may involve modification of terms of advances including alteration of amount of instalments/alteration of repayment period/ rate of interest/sanction of additional credit facilities etc. to help in curing default. Under RBI prudential norms, banks may restructure the accounts classified under standard, substandard or doubtful categories. On restructuring, the account will be downgraded from Standard to Sub-standard whereas NPAs will remain in the same category. In the given situation CA T selected account of Mr. X whose account was often overdue since April, 2024 but did not become NPA. On 01.11.2024, Bank accepted Mr. X's request to increase the repayment period and reduced rate of interest. Branch classified the account as Standard Asset as on 31.3.2025. However, CA T is of the view that the account should be classified as sub-standard asset as there is change in terms of payment. Thus, classification insisted by CA T regarding the account of Mr. X as on 31.03.2025 as sub-standard is correct. (ii) The Reserve Bank has prescribed objective norms for determining the quantum of provisions required in respect of advances. However, these norms should be construed as laying down the minimum provisioning requirements and wherever a higher provision is warranted in the context of the threats to recovery, such higher provision should be made. In the given situation, CA T drafted Memorandum of changes for account of Mr. X to be submitted to the branch. Rate of provision for secured portion of sub-standard assets prescribed by Board of ABC Bank Ltd. is 20%, whereas requirement as per IRAC norms is 15%. Since 15% provisioning prescribed by IRAC norms is minimum requirement, therefore, rate of provision prescribed by ABC Bank Ltd. for secured portion of Sub-standard Asset as 20% as higher provision is in order.