RBI ups provisioning on selected non-performing loans

The RBI on Tuesday tightened the provisioning requirement for banks on certain types of bad and restructured loans as part of its prudential provisioning framework.

Banks' bad loans are classified into three categories -- sub-standard, doubtful and loss.
The advances classified as ''sub-standard'' will now attract a provision of 15% as against the existing 10%, the apex bank said in its monetary policy statement for FY12 here.
However, a provision of 40% has been prescribed for the secured portion of advances which remained in the ''doubtful'' category for more than one-year but up to three years. The existing provision is 30%.
In the case of restructured accounts classified as standard advances, provisioning has been increased to 2% in the first two years from the date of restructuring as against the existing range of 0.25-1%, depending upon the category of advances, the RBI said.
In the case of restructured accounts classified as non-performing advances, when upgraded to the standard category, banks will now have to make a provision of 2% in the first year from the date of upgradation as against the existing provision of 0.25-1%, the apex bank said.
In December 2009, banks were told to maintain a Provisioning Coverage Ratio (PCR) of 70% for their non-performing advances by end-September 2010. This coverage ratio was intended to achieve a "counter-cyclical" objective by ensuring that banks build up a good cushion of provisions to protect them from any macroeconomic shock in the future.

Last month, banks were asked to segregate the surplus of provisions under the PCR vis-a-vis as required as per the prudential norms as on September 30, 2010, into an account called counter-cyclical buffer.

"While the "counter-cyclical buffer" so created would be available to banks for making specific provisions during economic downturns, there is a need for banks to make higher specific provisions also as part of the prudential provisioning framework," the RBI said.