RBI may soon issue new Norms on NPA

Nov 18, 2009


The Reserve Bank said it will soon come out with norms for
banks to augment the capital requirements that the lenders
have to keep aside against bad assets. “We will be issuing
the circular (provisioning against NPAs) so you can then see
 details on that,” RBI deputy governor Usha Thorat told.

When asked about the timing of the circular, she said, “soon.”
RBI governor D Subbarao, in the second quarterly review of
the monetary policy in October, had said there is need to
 increase provisioning against bad assets to not less than
 70% by September 2010. “It has been advised to banks to
augment their provisioning cushions consisting of specific
provisions against NPAs as well as floating provisions,
 and ensure that their total provisioning coverage ratio,
including floating provisions, is not less than 70%.

Banks should achieve this norm not later than end-September 2010,”
Subbarao said. The quarterly review noted that at present,
the provisioning requirements for NPAs range
between 10% and 100% of the outstanding amount,
 depending on the age of the NPAs, the security
available and the internal policy of the bank.

Since the rates of provisioning stipulated by RBI for NPAs are
 minimum and banks can make additional provisions subject
 to a consistent policy based on riskiness of their credit portfolios,
it has been observed that there is a wide heterogeneity and variance
in the level of provisioning coverage ratio across different banks, RBI had said.