Provisioning Norms for Advances and Loans in Banks as per RBI Rules

   PROVISIONING NORMS AS PER RBI GUIDELINES

1 Norms for Provisioning on Loans & Advances

1.1   In conformity with the prudential norms, provisions should be made on the non-performing assets on the basis of classification of assets into prescribed categories   

(i) Loss Assets

(a) The entire assets should be written off after obtaining necessary approval from the competent authority and as per the provisions of the Co-operative Societies Act/Rules. 

 If the assets are permitted to remain in the books for any reason, 100 per cent of the outstanding should be provided for.

(b) Regarding an asset identified as a loss asset, full provision at 100 per cent should be made if the expected salvage value of the security is negligible.

(ii) Doubtful Assets

(a) For Unsecured -Provision should be for 100 per cent of the extent to which the advance is not covered by the realisable value of the security to which the bank has a valid recourse should be made and the realisable value is estimated on a realistic basis.

(b)For secured - In regard to the secured portion, provision may be made on the following basis, at rates ranging from 20 per cent to 100 per cent of the secured portion depending upon the period for which the asset has remained doubtful:

Tier I Bank 

Period for which the advance has remained in the ‘doubtful’ category	Provision requirement
Up to one year	20 per cent
One to three years	30 per cent
More than three years (D-III) (i) outstanding  stock of NPAs as of March 31, 2010 (ii) advances classified as  ‘doubtful for more than three years’ on or after April 1, 2010	-  50 per cent. - 60 per cent with effect from March 31, 2011 - 75 per cent with effect from March 31, 2012 - 100 per cent with effect from March 31, 2013 -100 percent

Tier II Bank-

Period for which the advance has remained in the ‘doubtful’ category	Provision requirement
Up to one year	20 per cent
One to three years	30 per cent
More than three years (D-III) (i) outstanding  stock of NPAs as of March 31, 2007 (ii) advances classified as  ‘doubtful for more than three years’ on or after April 1, 2007	-  60 per cent with effect from March 31, 2008  -75 per cent with effect from March 31, 2009 - 100 per cent with effect from March 31, 2010 - 100 percent

 (iii) Sub-standard Assets

A general provision of 10 per cent on the total outstanding should be made without making any allowance for DICGC/ECGC guarantee cover and securities available.

(iv)  Provision on Standard Assets

(a) From the year ended March 31, 2000, the banks should make a general provision of a minimum of 0.25 per cent on standard assets.

(b) However, Tier II banks -The general provisioning requirement for all types of ‘standard advances’ shall be 0.40 per cent.  However, direct advances to agricultural and SME sectors which are standard assets, would attract a uniform provisioning requirement of 0.25 per cent of the funded outstanding on a portfolio basis,

(c) The provisions towards “standard assets” need not be netted from gross advances but shown separately as "Contingent Provision against Standard Assets" under "Other Funds and Reserves" {item.2 (viii) of Capital and Liabilities} in the Balance Sheet.

Dr Sucheta Dalvi