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RBI/2005-06/417
UBD(PCB).Cir.No. 57 /09.11.600/05-06
June 15, 2006
The Chief Executive Officers of
All Primary (Urban) Co-operative Banks
Dear Sir/Madam,
Annual Policy Statement for the
year 2006-07-Additional Provisioning Requirement for Standard Assets-UCBs
Please refer to paragraph 185 of
the Annual Policy Statement for the year 2006-07 (copy of the paragraph
enclosed).
2. The Committee on Banking Sector
Reforms (Chairman: Shri M. Narasimham) had recommended that, as a prudential
measure, a general provision of about one per cent of standard assets of banks
would be appropriate and should be implemented in a phased manner. Accordingly,
the general provisioning requirement for standard advances, with the exception
of banks' direct advances to agricultural and SME sectors, was increased from
0.25 to 0.40 per cent of the funded outstanding on a portfolio basis vide our
circular UBD.PCB.Cir.No. 20/09.11.600/05-06 dated November 24, 2005.
3. In order to ensure that asset
quality is maintained in the light of high credit growth, it has now been decided
to increase the general provisioning requirement on standard advances in specific
sectors, i.e., personal loans, loans and advances qualifying as capital
market exposures and commercial real estate loans from the present level of
0.40 per cent to 1.0 per cent. The higher provisioning norm on standard asset
will be applicable to Unit banks and banks having multiple branches within a
single district with deposit of Rs 100 crore and above and all other UCBs operating
in more than one district.
4. As hitherto, these provisions
would be eligible for inclusion in Tier II capital for capital adequacy purposes
to the permitted extent.
5. Please acknowledge receipt to
the Regional Office concerned.
Yours faithfully,
(N.S Vishwanathan)
Chief General Manager-In-Charge
Paragraph 185 of the Annual Policy
Statement for the year 2006-07
(k) Prudential Provisioning Requirements
185. The Committee on Banking
Sector Reforms (Chairman: Shri M. Narasimham) had recommended that, as a prudential
measure, a general provision of about one per cent of standard assets of banks
would be appropriate and should be implemented in a phased manner. The Mid-term
Review of October 2005 increased the provisioning requirement on standard assets,
with the exception of direct advances to agricultural and SME sectors, from
0.25 per cent to 0.40 per cent of the funded outstanding on portfolio basis.
To ensure that asset quality is maintained in the light of high credit growth,
it is proposed:
- to increase the general provisioning requirement
on standard advances in specific sectors, i.e., personal loans, loans
and advances qualifying as capital market exposures, residential housing
loans beyond Rs.20 lakh and commercial real estate loans from the present
level of 0.40 per cent to 1.0 per cent. As hitherto, these provisions would
be eligible for inclusion in Tier II capital for capital adequacy purposes
up to the permitted extent.
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