RBI asks UCBs to provide more for NPAs

The Reserve Bank of India (RBI) has asked all primary urban cooperative banks (UCBs) in the country to ensure more than the prescribed provision for non-performing assets (NPAs).

In a circular on Monday, RBI said the norms for provisioning represented only the minimum requirement. Banks, it said, could put in place policies to provide for estimated actual losses in collectible amounts and make provisions accordingly.

“The additional specific provision for NPAs, such as the minimum regulatory provision on NPAs, may be netted off from gross NPAs to arrive at net NPAs. The additional specific provision for NPAs will not be reckoned as Tier II capital,” the circular said. In addition, RBI has asked these banks to make excess provisions on sale of NPAs. The excess amount could be Tier II capital, subject to the overall ceiling of 1.25 per cent of total risk-weighted assets.

Further, it clarified that provisions for diminution of fair value of restructured loans — in the case of standard assets as well as NPAs — that are made on account of reduction in rate of interest or due to rescheduling of principal amount are permitted to be netted from the relative asset.