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RBI/2016-17/282
DBR.No.BP.BC.64/21.04.048/2016-17
April
18, 2017
All Scheduled Commercial Banks
(Excluding Regional Rural Banks)
Madam/Dear Sir,
Additional Provisions For
Standard Advances At
Higher Than The Prescribed Rates
Please refer to paragraph 5 of
the Master Circular - Prudential norms on Income Recognition, Asset
Classification and Provisioning pertaining to Advances dated July 1, 2015.
2. It is advised that the
provisioning rates prescribed in the abovementioned circular are the
regulatory minimum and banks are encouraged to make provisions at higher
rates in respect of advances to stressed sectors of the economy. With a
view to ensure that banks have adequate provisions for loans and advances
at all times, it is advised as under:
i) Banks shall put in place a
Board–approved policy for making provisions for standard assets at rates
higher than the regulatory minimum, based on evaluation of risk and stress
in various sectors.
ii) The policy shall require a
review, at least on a quarterly basis, of the performance of various
sectors of the economy to which the bank has an exposure to evaluate the
present and emerging risks and stress therein. The review may include
quantitative and qualitative aspects like debt-equity ratio, interest
coverage ratio, profit margins, ratings upgrade to downgrade ratio, sectoral
non-performing assets/stressed assets, industry performance and outlook,
legal/ regulatory issues faced by the sector, etc. The reviews may also
include sector specific parameters.
iii) More immediately, as the
telecom sector is reporting stressed financial conditions, and presently
interest coverage ratio for the sector is less than one, Board of Directors
of the banks may review the telecom sector latest by June 30, 2017, and
consider making provisions for standard assets in this sector at higher rates
so that necessary resilience is built in the balance sheets should the
stress reflect on the quality of exposure to the sector at a future date.
Besides, banks should also subject the exposure to the sector to closer
monitoring.
Yours faithfully
(S.S. Barik)
Chief General Manager-in- Charge
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