RBI asks banks to maintain 70% provisions for NPAs by Sep '10

MUMBAI: The Reserve Bank today instructed the commercial banks to increase their provisioning against bad assets to at least 70 per cent by September 2010, a move seen as a step towards enhancing the resilience of the banking system.

"... banks should augment their provisioning cushions ... and ensure that their total provisioning coverage ratio, including floating provisions, is not less than 70 per cent," the central bank said in a notification.

Currently, provisioning requirements for non-performing assets (NPAs) range between 10 per cent and 100 per cent of the outstanding amount, depending upon the age of the NPAs and the security available.

Further, banks can also make additional provisions based on riskiness of their credit portfolios as the rates of provisioning stipulated for NPAs are the regulatory minimum.

"It has been observed that there is a wide heterogeneity and variance in the level of provisioning coverage ratio across different banks," RBI said citing the reason for the move.

The higher provisioning would enhance the soundness of individual banks and also the stability of the financial sector, the notification said.

"Banks should achieve this norm not later than end-September 2010," RBI said.