Nbfc
This query is : Resolved
Vikas Goyal
(Querist)
05 November 2014
Nbfc provisioning rates for standard, sub std., doubtful and loss assets
Vikas Goyal
(Querist)
05 November 2014
For CA Final nov.2014 exams
03 August 2024
For Non-Banking Financial Companies (NBFCs), the provisioning norms for various types of assets are prescribed by the Reserve Bank of India (RBI). Here are the general provisioning requirements as per the RBI guidelines:
### **1. Provisioning for Standard Assets**
- **Rate:** 0.25% of the outstanding amount.
- **Description:** Standard assets are those that are not overdue and are performing as per the terms and conditions of the loan agreement.
### **2. Provisioning for Sub-Standard Assets**
- **Rate:** 15% of the outstanding amount.
- **Description:** Sub-standard assets are those which have remained NPA (Non-Performing Asset) for a period of less than or equal to 12 months.
### **3. Provisioning for Doubtful Assets**
- **Rate:**
- **For Assets that have been NPA for more than 12 months but less than 3 years:** 25% of the outstanding amount.
- **For Assets that have been NPA for more than 3 years:** 40% of the outstanding amount.
- **Description:** Doubtful assets are those which have been classified as NPA for more than 12 months and are further categorized based on the duration of non-payment.
### **4. Provisioning for Loss Assets**
- **Rate:** 100% of the outstanding amount.
- **Description:** Loss assets are those where the amount is considered uncollectible and are usually written off.
### **Additional Notes:**
- **Provisions for Credit Concentration Risk:** NBFCs might also need to make provisions for specific risks associated with high credit concentration.
- **Regulatory Changes:** Always refer to the latest RBI guidelines or circulars, as these provisioning rates are subject to periodic updates and regulatory changes.
### **Summary of Provisions:**
| **Asset Classification** | **Provisioning Rate** |
|--------------------------|--------------------------|
| **Standard Assets** | 0.25% |
| **Sub-Standard Assets** | 15% |
| **Doubtful Assets (1-3 years)** | 25% |
| **Doubtful Assets (more than 3 years)** | 40% |
| **Loss Assets** | 100% |
These provisioning norms are crucial for maintaining the financial health and stability of NBFCs, ensuring that they are adequately prepared for potential loan losses. Always check the latest RBI guidelines for any updates or changes to these provisions.
### **1. Provisioning for Standard Assets**
- **Rate:** 0.25% of the outstanding amount.
- **Description:** Standard assets are those that are not overdue and are performing as per the terms and conditions of the loan agreement.
### **2. Provisioning for Sub-Standard Assets**
- **Rate:** 15% of the outstanding amount.
- **Description:** Sub-standard assets are those which have remained NPA (Non-Performing Asset) for a period of less than or equal to 12 months.
### **3. Provisioning for Doubtful Assets**
- **Rate:**
- **For Assets that have been NPA for more than 12 months but less than 3 years:** 25% of the outstanding amount.
- **For Assets that have been NPA for more than 3 years:** 40% of the outstanding amount.
- **Description:** Doubtful assets are those which have been classified as NPA for more than 12 months and are further categorized based on the duration of non-payment.
### **4. Provisioning for Loss Assets**
- **Rate:** 100% of the outstanding amount.
- **Description:** Loss assets are those where the amount is considered uncollectible and are usually written off.
### **Additional Notes:**
- **Provisions for Credit Concentration Risk:** NBFCs might also need to make provisions for specific risks associated with high credit concentration.
- **Regulatory Changes:** Always refer to the latest RBI guidelines or circulars, as these provisioning rates are subject to periodic updates and regulatory changes.
### **Summary of Provisions:**
| **Asset Classification** | **Provisioning Rate** |
|--------------------------|--------------------------|
| **Standard Assets** | 0.25% |
| **Sub-Standard Assets** | 15% |
| **Doubtful Assets (1-3 years)** | 25% |
| **Doubtful Assets (more than 3 years)** | 40% |
| **Loss Assets** | 100% |
These provisioning norms are crucial for maintaining the financial health and stability of NBFCs, ensuring that they are adequately prepared for potential loan losses. Always check the latest RBI guidelines for any updates or changes to these provisions.
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