Prudential Norms for Conversion of Unpaid Interest into ‘Funded Interest Term Loan’ (FITL), Debt or Equity Instruments :
Asset classification norms
The FITL / debt or equity instrument created by conversion of unpaid interest will be classified in the same asset classification category in which the restructured advance has been classified. Further movement in the asset classification of FITL / debt or equity instruments would also be determined based on the subsequent asset classification of the restructured advance.
Income recognition norms
The income, if any, generated by these instruments may be recognised on accrual basis, if these instruments are classified as ‘standard’, and on cash basis in the cases where these have been classified as a non-performing asset.
The unrealised income represented by FITL / Debt or equity instrument should have a corresponding credit in an account styled as “Sundry Liabilities
Account (Interest Capitalization)”.
In the case of conversion of unrealised interest income into equity, which is quoted, interest income can be recognized after the account is upgraded to standard category at market value of equity, on the date of such upgradation, not exceeding the amount of interest converted into equity.
Only on repayment in case of FITL or sale / redemption proceeds of the debt / equity instruments, the amount received will be recognized in the P&L Account, while simultaneously reducing the balance in the “Sundry Liabilities Account (Interest Capitalisation)”.
Valuation & Provisioning norms
Valuation and provisioning norms would be as per para 3.111 above. The depreciation, if any, on valuation may be charged to the Sundry Liabilities (Interest Capitalisation) Account.