RBI/2010-11/370
DNBS.PD.CC.No.207/ 03.02.002 /2010-11
January 17, 2011
All NBFCs
Dear sir,
Provision of 0.25% for standard assets of NBFCs
1. In terms of Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, and Non-Banking Financial (Non- Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, all NBFCs are required to make necessary provisions for non performing assets. In the interests of counter cyclicality and so as to ensure that NBFCs create a financial buffer to protect them from the effect of economic downturns, it has been decided to introduce provisioning for standard assets also.
2. Accordingly
i) NBFCs should make a general provision at 0.25 per cent of the outstanding standard assets.
(ii) The provisions on standard assets should not be reckoned for arriving at net NPAs.
(iii) The provisions towards Standard Assets need not be netted from gross advances but shown separately as 'Contingent Provisions against Standard Assets' in the balance sheet.
(iv) NBFCs are allowed to include the ‘General Provisions on Standard Assets’ in Tier II capital which together with other ‘general provisions/ loss reserves’ will be admitted as Tier II capital only up to a maximum of 1.25 per cent of the total risk-weighted assets.
3. Accompanying Notifications No. DNBS. 222 CGM(US)2011 and No. DNBS. 223 CGM (US) 2011 both dated January 17, 2011 are enclosed for meticulous compliance.
Yours sincerely,
(Uma Subramaniam)
Chief General Manager-in-Charge
Encl: as above
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