Norms on capital cover for bad assets on the cards

Norms on capital cover for bad assets on the cards

Banks have been advised to beef up their provisioning cushions

“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 per cent 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 per cent. 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 per cent and 100 per cent of the outstanding amount, depending on the age of the NPAs, the security available and the internal policy of the bank.

Risk of credit portfolios
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.
Increase in provisioning against bad debt would make a dent on profitability of banks.

Counterfeit note
Speaking about counterfeit note, Thorat said that according to estimate there are 8-9 fake currency note per million, the central government is asking banks to install sorting machine at branches. Banks should also use sorting machine before filling currency notes in the ATM machine, she said. In a bid to increase awareness, Thorat said RBI has been conducting awareness camp regarding fake currency and unregistered non-banking financial companies.

Such an awareness camp was held in Sikkim and Raipur, she added. RBI has set up a stall at the ongoing India International Trade Fair here in Delhi to inform the general public about financial inclusion, fake currency and do’s and don’t to be followed while transacting with an NBFCs.