PRUDENTIAL TREATMENT OF DIFFERENT TYPES OF PROVISIONS IN RESPECT OF LOAN PORTFOLIOS
- Additional Provisions for NPAs at higher than prescribed rates:
Banks may voluntarily make specific provisions for NPAs at rates which are higher than the rates
prescribed under existing regulations if such higher rates are based on a policy approved by the Board of Directors to provide for estimated actual loss in collectible amount and the policy is consistently adopted from year to year.
- Excess Provisions on sale of Standard Asset/ NPAs:
If the sale is in respect of Standard Asset and the sale consideration is higher than the book value,
the excess provisions may be credited to Profit and Loss Account.
- Provisions for diminution of fair value:
Provisions for diminution of fair value of restructured advances, both in respect of Standard Assets as well as NPAs, made on account of reduction in rate of interest and /or reschedulement of principal amount are permitted to be netted from the relative asset.
- Floating Provisions:
In partial modification of circular DBOD.No.BP.BC.89/21.04.048/2005-06 dated June 22, 2006, while Floating Provisions cannot be netted from gross NPAs to arrive at net NPAs, it is clarified that they could be reckoned as part of Tier II capital subject to the overall ceiling of 1.25% of total Risk Weighted Assets.
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