RBI's NPA relief for banks comes with requirement for more provisioning

In a bid to curb bad loans and maintain capital adequacy of banks, the Reserve Bank of India has said that banks will have to maintain a higher provision of 10 per cent of all the accounts which have availed the moratorium on loan repayment till June 2020.

Mumbai, April 17 In a bid to curb bad loans and maintain capital adequacy of banks, the Reserve Bank of India has said that banks will have to maintain a higher provision of 10 per cent of all the accounts which have availed the moratorium on loan repayment till June 2020.

Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced that in respect of all accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020, the 90-day NPA norm shall exclude the moratorium period. So the asset classification for these accounts would be standstill from March 1, 2020 to May 31, 2020.

However, taking into account the risk build-up in the banks' balance sheets on account of firm-level stress and delays in recoveries, Das said: "With the objective of ensuring that banks maintain sufficient buffers and remain adequately provisioned to meet future challenges, they will have to maintain higher provision of 10 per cent on all such accounts under the standstill, spread over two quarters, i.e., March, 2020 and June, 2020."

Experts have hailed the move and said that it would both curb NPAs and ensure adequate liquidity with the banks.

Assocham Secretary General, Deepak Sood said: "The fact that the NPA re-classification norms giving more time to the stressed loans to remain 'standard' are accompanied by the need for higher provisioning by banks shows the prudence path followed by the RBI."

Higher provisioning would provide long term stability and higher protection to the banks, he added.

"After all, the banks are frontline warriors of businesses as doctors and health workers are to the human beings."

The RBI said these provisions can be adjusted later on against the provisioning requirements for actual slippages in such accounts. So if the slippages reduce, the provisioning will also fall.

Sai Venkateshwaran, Partner and Head, CFO Advisory, KPMG in India said: "The RBI announcement on asset classification standstill should help in easing the loss provisioning for non-performing loans."

( With inputs from IANS )