Banking service chronicle

Banking service chronicle

Banking service chronicle Monthly Magazine by bsc academy-subscribe Published this article page no  47 PROVISIONING OF LOANS  The Reserve Bank of India (RBI) has recently provided clarification on special provisioning of loans which are under moratorium.  RBI had stipulated in April that lending institutions shall make 10% provisioning (5 percent phased over two quarters) on loans that are overdue but not yet Nonperforming Assets (NPAs) and where moratorium has been approved.  Under loan provisioning banks have to set aside earning or provide funds to a prescribed percentage of their bad assets. o Provisioning norms are prescribed by the RBI as per asset classification. For example The normal provisioning of NPA is 15% for secured loans and 25% of unsecured loans.  This means if a ₹100crore loan becomes an NPA or substandard at least ₹15 crore has to set aside by the bank from its earnings as provision.RBI has now clarified that provisioning should be considered only for loans categorised as Special Mention Accounts2 (SMA2) at the start of moratorium period. o Special Mention Account (SMA) is an account which is exhibiting signs of incipient stress resulting in the borrower defaulting in timely servicing of her debt obligations though the account has not yet been classified as NPA. o According to an estimate total SMA2 loans were around ₹0.96 lakh crore in end September 2019. Asset Classification as per RBI banking service chronicle monthly magazine buy.  

Banking service chronicle