RBI/2006-2007/261
UBD(PCB).Cir.No.30
/09.11.600/06-07 February
19, 2007 The Chief Executive Officers of
All Primary (Urban) Co-operative
Banks Dear Sir/Madam, Third Quarter Review of the
Annual Statement on Monetary Policy for the year 2006-07 - Provisioning Requirement
for Standard Assets-UCBs Please refer to paragraph 84
of the Third
Quarter Review of the Annual Statement on Monetary Policy for the year 2006-07
issued on January 31, 2007 (copy of the paragraph enclosed). Standard
Asset Provisions 2. In order to ensure that asset quality
is maintained in the light of high credit growth, it was decided in respect of
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,
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 existing level of 0.40
per cent to 1.0 per cent vide circular UBD(PCB).Cir.No. 57/09.11.600/05-06 dated
June 15, 2006. 3. The continued high credit growth in the
real estate sector, personal loans, and loans and advances qualifying as capital
market exposure and a higher default rate in regard to personal loans is a matter
of concern to Reserve Bank. It has, therefore, been decided to increase the provisioning
requirement in respect of the standard assets in the following categories
of loans and advances from the present level of one per cent to two per cent with
immediate effect: (a) Personal loans;
(b)
Loans and advances qualifying as capital market exposure; and
(c)
Real estate loans (excluding residential housing loans). As
hitherto, 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. In order to ensure continued and adequate availability
of credit to highly productive sectors of the economy, the provisioning
requirement for all other loans and advances, which are standard assets, including
those to agriculture, SMEs and industry in general shall remain unchanged. The
standard asset provisioning requirements for categories of banks mentioned at
para 2 above, after the above changes, are summarised below. As hitherto, these
provisions would be eligible for inclusion in Tier II capital for capital adequacy
purposes to the permitted extent.
| Sr.
No. | Category
of standard asset | Rate
of provisioning | | (a) |
Direct advances to agricultural and SME sectors |
0.25 % | |
(b) |
Personal loans, Loans and advances qualifying as
capital market exposures, Commercial real estate loans and loans and advances
to systemically important NBFCs-ND. | 2.00
% | | (c) |
All other loans and advances not included in (a)
and (b) above | 0.40% |
5. It
has also been decided to increase the provisioning requirement for loans and advances
in the standard assets category to Non-Deposit Taking Systemically Important Non-Banking
Finance Companies (NBFC- ND -SI) from 0.40 per cent at present to two per cent
with immediate effect. In terms of paragraph 16(A)(i) of our circular DNBS.PD/
CC.No.86/ 03.02.089/ 2006-07 dated December 12, 2006, a Non-Deposit Taking
NBFC with an asset size of Rs.100 crore or more as per the last audited balance
sheet is considered as a NBFC-ND-SI. It has also been decided to increase the
risk weight for all exposures to NBFC-ND-SI to 125 % from the present level of
100 % with immediate effect. 6. Please acknowledge receipt
to the Regional Office concerned of Reserve Bank of India. Yours
faithfully, (N.S.Vishwanathan)
Chief General Manager-In-Charge
Paragraph
84 of the Third Quarter Review of Annual Statement on Monetary Policy for the
year 2006-07 The
continued high credit growth in the real estate sector, outstanding credit card
receivables, loans and advances qualifying as capital market exposure and personal
loans is a matter of concern. Furthermore, the data reveal higher default rates
in regard to credit card receivables and personal loans. It has, therefore, become
imperative to increase the provisioning requirement in respect of the standard
assets in the aforesaid four categories of loans and advances (excluding residential
housing loans) to two per cent from the existing level of one per cent. The provisioning
requirement in respect of residential housing loans will remain unchanged at 0.4
per cent for loans up to Rs.20 lakh and at one per cent for loans in excess of
Rs.20 lakh. It has also been decided to increase the provisioning requirement
for banks' exposures in the standard assets category to the non-deposit taking
systemically important non-banking financial companies (NBFCs) to two per cent
from the existing level of 0.4 per cent and to increase the risk weight for banks'
exposure to such NBFCs to 125 per cent from the existing level of 100 per cent.
Provisioning requirements and risk weights for banks' exposures to asset finance
companies will remain unchanged. In order to ensure continued and adequate availability
of credit to highly productive sectors of the economy, the risk weights for all
other categories of exposures also remain unchanged. Similarly, the provisioning
requirements in regard to agricultural loans, loans to SMEs and loans to industry,
in general, remain unchanged |