RBI relaxes bad loans provisioning rules for banks, permits 100% utilization of floating provisions

The Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday announced that banks are allowed to utilise100 per cent of floating provisions/counter-cyclical provisioning buffer for making specific provisions for non-performing assets.

RBI in its circular dated May 5, 2021 stated that “In order to mitigate the adverse impact of COVID 19 related stress on banks, as a measure to enable capital conservation, it has been decided to allow banks to utilise 100 per cent of floating provisions/ countercyclical provisioning buffer held by them as on December 31, 2020 for making specific provisions for non-performing assets with prior approval of their Boards”. Such utilisation is permitted with immediate effect and upto March 31, 2022. It said.

RBI vide its circulars DBOD.No.BP.BC.89/21.04.048/2005-06 dated June 22, 2006 and DBOD.No.BP.BC.68/21.04.048/2006-07 dated March 13, 2007 advised banks in respect of creation, accounting, disclosures and utilisation of floating provisions by banks. In April 21, 2011, RBI had advised that the buffer will be allowed to be used by banks for making specific provisions for non-performing assets, inter alia, during periods of system wide downturn, with the prior approval of RBI. Further, on March 30, 2015 the Central Bank allowed the banks to utilise upto 33 per cent and 50 per cent of floating provisions/ countercyclical provisioning buffer held by them as on March 31, 2013 and December 31, 2014 respectively for specific provision for NPA with prior approval of their Board.