The Reserve Bank of India On Wednesday issued fresh norms for the treatment of provisions for restructured accounts, standard assets, and non-performing assets (NPAs).
In a circular issued to banks on Wednesday, the central bank said: “Banks may voluntarily make specific provisions for NPAs at rates which are higher than the rates prescribed under existing regulations.” Higher rates of provisioning should be approved by bank boards and the policy be adopted consistently every year.
However, the banking regulator has clarified that excess provisions can be treated as tier II capital subject to the overall ceiling of 1.25 per cent of the total risk-weighted assets provided it is approved by the board of banks, the apex bank said in a notification.
Excess provisions which arise on sale of NPAs can be admitted as Tier-II capital subject to the overall ceiling of 1.25 per cent of total risk weighted assets. Accordingly, these excess provisions that arise on sale of NPAs would be eligible for Tier-II status.
RBI has also permitted banks to voluntarily make specific provisions for NPAs at rates higher than that prescribed under existing regulations, to provide for estimated actual loss in collectible amount, if the policy is adopted consistently year to year.
“The additional provisions for NPAs, like the minimum regulatory provision on NPAs, may be netted off from gross NPAs to arrive at the net NPAs,’’ RBI added.
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