RBI tightens provisioning norms for bad loans

The Reserve Bank of India (RBI) has increased the provisioning norms for certain categories of non-performing assets and restructured loans.

These measures were announced by the RBI governor in his annual monetary policy on May 3. “While the 'counter-cyclical buffer' would be available to banks for making specific provisions during economic downturns, there is a need for banks to make higher specific provisions as part of the prudential provisioning framework,” RBI Governor Subbarao had said, while unveiling the annual monetary policy.

Under the new revised norms, loans classified as sub-standard would attract a provision of 15 per cent, against the current 10 per cent, RBI said in communication to chief executives of banks on Wednesday.

For unsecured loans classified as sub-standard assets, an additional 10 per cent provision would have to be made over the current 15 per cent. Thus, the total provisioning for sub-standard unsecured loans would now be 25 per cent, against 20 per cent mandated earlier.

The provision for the secured portion of advances, which have been in the doubtful category for up to one year, was raised to 25 per cent from the current 20 per cent. Restructured loans classified under the standard category would need a provision of two per cent in the first two years from the date of restructuring.