RBI rolls back floating provision norm
The Reserve Bank of India has gone back on its stand on floating provision and it is now left to banks on how they want to treat such provisions.
“Banks will continue to have the choice between deducting their existing floating provisions from gross NPAs to arrive at net NPAs or reckoning it as part of Tier II capital subject to the overall ceiling of 1.25 per cent of total risk weighted assets,” RBI said.
Floating provisions are part of profits kept for future contingencies.
On March 25, RBI asked the banks not to deduct floating provisions from gross NPA to arrive at net NPA but reckon it to Tier-II capital. Now, the central bank said the March 25 circular has been “deferred until further advice”.
The norms which came into effect from the April-June quarter has seen most of the banks registering increase in net NPA. Banks had requested the central bank to review the decision.
The central bank said as the Financial Stability Board (FSB), Basle Committee on Banking Supervision (BCBS) and Committee on Global Financial System (CGFS), along with accounting standard setters are working on measures to mitigate pro-cyclicality.
As the exercise is expected to take some more time, RBI will take a fresh look on the issue after provisioning norms are finalized by the international authorities.