RBI notifies provisioning guidelines

The Reserve Bank of India has notified that as announced in its annual monetary policy statement for 2006-07 (April-March) the general provisioning norms on standard advances in sectors such as capital market exposures, housing loans above Rs 2 million, and commercial real estate loans have been increased to 1 per cent from 0.40 per cent.

Below is the full text of the notification:
The committee on banking sector reforms headed by M Narasimham had recommended that, as a prudential measure, a general provision of about one per cent of standard assets of banks would be appropriate and should be implemented in a phased manner.

Accordingly, in November 2005, the general provisioning requirement for standard advances, with the exception of banks' direct advances to agricultural and

SME sectors, was increased from 0.25 to 0.40 per cent of the funded outstanding on a portfolio basis.

To ensure that asset quality is maintained in the light of high credit growth, it has now been decided to increase the general provisioning requirement on standard advances in specific sectors, that is, personal loans, loans and advances qualifying as capital market exposures, residential housing loans beyond Rs 20 lakh and commercial real estate loans from the present level of 0.40 per cent to 1.0 per cent.

As hitherto, these provisions would be eligible for inclusion in Tier II capital for capital adequacy purposes to the permitted extent.