RBI introduces new provisioning norms
February 2013
In an official statement, Reserve Bank of India (RBI) said banks must make 3.75 percent provisioning, from March 31, 2014, for loans already restructured. The provisioning would rise further to 5 percent with effect from March 31, 2015, the statement said.
The central bank also said that with effect from April 1, 2015, restructured accounts would be immediately classified as sub-standard. Non-performing assets that have been restructured will continue to have the same asset classification as prior to restructuring, it said.
RBI also increased the amount lenders must set aside against potential losses on new loans to 5 percent with effect from April 1, 2013. It had already increased the provisioning requirement to 2.75 percent last year.
The above measures were taken based on the recommendations of a panel. The RBI set up a working group early in 2012 to review its guidelines on restructuring of loans by banks and financial institutions and suggest changes taking into account the best international practices and accounting standards.
It reported in July and the central bank first lifted provisioning amounts in line with its recommendations in November.
Concerns about asset quality of banks increased on the back of slowdown in the economic growth and stress on revenue and margins of companies.
It may be recalled that the central bank lowered its economic growth forecast for the fiscal year ending in March to 5.5 percent from 5.8 percent earlier.