RBI to issue norms on NPA

RBI to issue norms on NPA soon

New Delhi
November 17, 2009

The Reserve Bank on Monday said it will soon come out with norms for banks to augment the capital requirements that the lenders have to keep aside against bad assets.

“We will be issuing the circular (provisioning against NPAs) so you can then see details on that,” RBI deputy governor Usha Thorat told reporters here. When asked about the timing of the circular, she said, “soon.”

RBI governor D Subbarao, in the second quarterly review of the monetary policy in October, had said there is need to increase provisioning against bad assets to not less than 70% by September 2010.

“It has been advised to banks to augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions, and ensure that their total provisioning coverage ratio, including floating provisions, is not less than 70%. Banks should achieve this norm not later than end-September 2010,” Subbarao said.

The quarterly review noted that at present, the provisioning requirements for NPAs range between 10% and 100% of the outstanding amount, depending on the age of the NPAs, the security available and the internal policy of the bank. Since the rates of provisioning stipulated by RBI for NPAs are minimum and banks can make additional provisions subject to a consistent policy based on riskiness of their credit portfolios, it has been observed that there is a wide heterogeneity and variance in the level of provisioning coverage ratio across different banks, RBI had said.

[Source: The Financial Express]