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Money > Business Headlines > Report April 30, 2002 | 1155 IST |
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Moving towards global standards in NPA definitionBS Banking Bureau
With effect from March 31, 2005, banks will have to classify assets as 'doubtful', if they remained under the sub-standard category for 12 months (currently at 18 months). To help banks overcome the extra provisioning because of the change in classification, the central bank has allowed for a phased provisioning: a minimum of 20 per cent each year over four years. Banks may go in for aggressive provisioning form the current fiscal. Some of the public as well as private sector banks, which have been lax in provisioning will be affected by the new norms even as banks have got another three years. Banks have to provide 10 per cent of the loan amount when an asset is in the sub-standard category. However, when an asset becomes doubtful, they have to completely provide for unsecured category. For the secured part of the loans, banks have to provide 20 per cent in the first year, 30 per cent in the second and 50 per cent in the third year. Bankers feel that if banks have to mitigate the effect of change in the norms, it would be better for them to start providing for the bad loans from the current year. "A sudden change of classification norms on March 31, 2005 would affect the profitability of many of a bank. This would also the time when foreign banks would get an entry into the country. RBI wants the banks to start following the international standards," said a banker. In this fiscal's Budget, banks have been allowed a deduction in respect of any provision for bad and doubtful debts to the extent of 7.5 per cent of the total income and an amount not exceeding 10 per cent of the aggregate average advances made by the rural branches. According to a senior banker, banks are likely to go in for aggressive provisioning due to the fiscal relieves provided, and also because of the stance taken by RBI. ALSO READ:
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