RBI revises NPAs provision norms for co-op banks to ensure uniformity

Prescribes one-time measure for smoother transition to new regime

Pointing to variation in the treatment of provisions for non-performing assets (NPAs) across co-operative banks, Reserve Bank of India on Friday issued norms for uniformity in the treatment of Bad and Doubtful Debt Reserve (BDDR) for prudential purposes.

As a one-time measure, it also prescribed specific steps to facilitate rectification and smoother transition to an accounting standard compliant approach.

These revised norms will be applicable to Urban Co-operative Banks, State Cooperative Banks and Central Co-operative Banks and come into force with immediate effect, RBI said in communication to these regulated entities.  

Beginning FY25, the provisions should be charged as an expense to the Profit & Loss account (P&L account) in the accounting period in which they are recognised. The reckoning of such provisions for regulatory capital will continue to be guided by the existing norms for capital adequacy, RBI said.

Referring to regulatory treatment for smoother transition, RBI said previously, banks may have created provisions by appropriating from the net profit rather than recognising the same as an expense in the P&L account. The balances in BDDR as on March 31, 2024, representing such provisions in the previous years should be identified and quantified.

The appropriation should be made directly from the P&L Account or General Reserves to make provisions for NPAs by March 31, 2025. Such provisions can be netted off from GNPAs to arrive at NNPAs, the regulator said.

Amount of balances in BDDR, which are not required for provisions, can be moved to General Reserves or Balance in P&L Account.

After following the above mentioned steps, the balances in the BDDR can be reckoned as Tier 1 capital. However, balance in the BDDR should not be not be reduced from Gross NPAs to arrive at Net NPAs, it added.