The RBI has said in cases of sub-standard assets, banks need to provide up to 10 per cent of the net book value. Net book value is the gross book value (historical value) less the accumulated depreciation.

In cases of doubtful assets, the central bank has said provisions to the tune of 100 per cent have to made for the extent to which the finance is not secured by the realisable value of the leased asset. Over and above this, if the asset has been doubtful for a period of one year, then a provision of 20 per cent has to be made on the net book value, it has said. For doubtful assets between one and three years, 30 per cent of the net book value will have to be provided for while doubtful assets of morethan three years, 50 per cent has to be provided for. For loss assets, the entire asset should be written off. "If for any reason, asset is allowed to remain in the books, 100 per cent of the net book value should be provided for," the newly laid out guidelines said. The central bank has directed that the net lease rentals (finance charges) on the leased assets, which have accrued and credited to income amount before the asset became non-performing--and remaining unrealised--should be reversed or provided for in the current accounting period.

"The term `net lease rentals' would mean the amount of finance charge taken to the credit of profit and loss account and would be worked out as gross lease rentals adjusted by amount of statutory depreciation and lease equalisation account," the RBI said.

INSIGHT
Prudent move

Strengthening of any prudential norms by the Reserve Bank is welcome. Leased assets have been brought on a par with advances in the manner of treatment of leasingnon-performing assets. However, the norms are just a matter of prudence and are unlikely to impact banks too much, even though banks will have to take cognisance of the guidelines and reverse the interest component of the lease rental from assets considered to be non-performing. Bank derive a fraction of their revenues from the leasing business and will suffer a minimal impact. For example, of an income of Rs 22,000 crore lease finance charges amount to just Rs 18.6 crore for State Bank.

--Aaron Chaze