Provisioning Requirement for Standard Assets

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Provisioning Requirement for Standard Assets

RBI 2009-10/209
DBOD.No.BP.BC. 58 /21.04.048/2009-10

November 5, 2009

The Chairman and Managing Director / Chief Executive Officer
All Commercial Banks (Excluding RRBs and LABs)

Dear Sir,

Second Quarter Review of Monetary Policy for the Year 2009-10 –
Provisioning Requirement for Standard Assets

Please refer to paragraph 158 of the Second Quarter Review of Monetary Policy for the year 2009-10 announced on October 27, 2009 (copy of the paragraph enclosed).

2. In terms of paragraph 2 (a) of our circular No. DBOD.BP.BC. 83/21.01.002/ 2008-09 dated November 15, 2008, the provisioning requirements for all types of standard assets had been reduced to a uniform level of 0.40 per cent except in the case of direct advances to Agriculture and SME sectors which continued to attract a provisioning of 0.25 per cent.

3. In view of large increase in credit to the Commercial Real Estate (CRE) sector over the last one year and the extent of restructured advances in this sector, it would be prudent to build cushion against likely non-performing assets (NPAs). Accordingly, it has now been decided to increase the provisioning requirement for advances to the CRE sector classified as ‘standard assets’ from the present level of 0.40 per cent to 1.00 per cent.

4. The standard asset provisioning requirements for all categories, after the above change, are summarised below.

Sr. No.	Category of standard asset	Rate of provisioning
(a)	Direct advances to Agriculture and SME sectors	0.25 %
(b)	Commercial Real Estate (CRE) sector	1.00 %
(c)	All other loans and advances not included in (a) and (b) above	0.40%

Yours faithfully

(B. Mahapatra)
Chief General Manager

Paragraph 158 of the Second Quarter Review
of Monetary Policy for the year 2009-10

In view of large increase in credit to the commercial real estate sector over the last one year and the extent of restructured advances in this sector, it would be prudent to build cushion against likely non-performing assets (NPAs). Accordingly, it is proposed to increase the provisioning requirement for advances to the commercial real estate sector classified as ‘standard assets’ from the present level of 0.40 per cent to 1 per cent.