Banks surprised over RBI decision of selectively easing provision norms

The banking industry officials are astonished on the decision taken by the Reserve Bank of India of relaxation of its floating provisioning norm that too selectively

Chairman of a large state-owned bank pointed out, "If RBI tightened the norms once, then how can they immediately relax it, that too selectively." For banks floating provisions are like profits which are kept aside for unseen emergency.

Earlier in March the RBI had said banks can not deduct floating provisions from gross NPAs. Instead the banks are required to add up to the floating provisions made to their Tier-II capital.

This norm was applicable for the quarter ended March, but on the banks’ pleas RBI postponed the decision to quarter ended June.

Following the new norm issued by the RBI most banks classified the floating provisions to Tier-II capital, but some banks asked for flexibility from the RBI. Around five banks requested the central bank to permit them to deduct the floating provisions made from their gross NPAs. Thus RBI permitted Punjab National Bank, Bank of Baroda, and Central Bank of India the flexibility but not gave the permission to the Union Bank of India and Indian Bank.

During the quarterly monetary policy review bankers discussed this matter with the governor D Subbarao. Banker told RBI has given them assurance that regarding this a comprehensive guideline will be issued.

Banks who following the new norms deducted floating provisions from their gross NPA witnessed growth in their net NPAs and fall in provision coverage ratio in the June quarter. On Wednesday Punjab National Bank had announced its results it took advantage of the special consideration by the RBI.

The bank has deducted Rs 1,080 crore floating provision from gross NPA to account net NPAs of 0.19% as on June 30 as against 0.63% of the same period in the previous year. On the other hand Union Bank of India who was not allowed netting off by the RBI had to deem the floating provisions of Rs 530 crore as part of its Tier-II capital which resulted in the rise of bank’s net NPA to 0.72% in the June quarter from 0.15% a year ago.