Need To Upgrade Provisioning Norms Stressed

The existing provisioning requirements in the Indian banking sector should to be enhanced in line with the international best practices, Reserve Bank of India (RBI) deputy governor Vepa Kamesam said.

"Given the delay in recovery of dues through the legal process, the current provisioning norms followed in India do not entirely cover the latent losses inherent in such advances," Kamesam said at the 55th annual general meeting of the Indian Banks' Association (IBA) on Saturday.

In some countries, doubtful assets, irrespective of their status (i.e. secured or unsecured) are required to be classified as loss assets and have to be fully provided for. However, in India, doubtful assets backed by collateral are provided for only up to 50 per cent of the outstanding balances, irrespective of the number of years in which the accounts remain in this category.

With a view to tighten the prudential standards, the RBI has introduced the 90 days delinquency norm for identification of non-performing assets (NPAs) with effect from the year ending March-end 2004 and has reduced the time-frame for classification of a sub-standard asset as a doubtful asset from 18 months to 12 months with effect from the year ending March 2005.

Touching upon the issue of competition and consolidation, Kamesam said, universally there was a move towards consolidation and convergence. "It has been our contention that the government and supervisory authorities should only provide a conducive environment for consolidation and convergence through appropriate fiscal and monetary policies supported by a sound regulatory and supervisory framework."

"Hence, bank consolidation/ merger process should be primarily market driven and such proposals should come voluntarily from the banks themselves depending on the organisational synergy and the market share," said Kamesam.