RBI relaxes NPA provisioning norms for banks

23 Apr 2011

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The Reserve Bank of India (RBI) has relaxed banks' provisioning norms for non-performing assets (NPAs) with retrospective effect from 30 September 2010, thereby helping the banks to post higher profits.

The RBI said, banks would have to maintain a provision coverage ratio (PCR) of 70 per cent of their gross NPAs only till 30 September, 2010, after which they will have to follow just the standard capital provisioning requirement as per by the Basel committee norms.

RBI said a majority of the banks in India have achieved the PCR of 70 per cent and have been representing to RBI whether the prescribed PCR is required to be maintained on an ongoing basis.

RBI said it has since examined the matter and till such time the central bank introduces a more comprehensive methodology of countercyclical provisioning taking into account the international standards as are being currently developed by Basel Committee on Banking Supervision (BCBS) and other provisioning norms, the surplus of the provisions under the provision coverage ratio should be kept in a separate account known as the counter-cyclical provisioning buffer.

Banks will be able to draw from this buffer for making specific provisions for their non-performing assets during a period of downturn with the prior approval of RBI.

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