Mumbai: The Reserve Bank of India (RBI) on Wednesday allowed banks to book excess provisions from the sale of their standard assets in their profit and loss accounts.
“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,” RBI said in a notification on its website.
A standard asset is a loan wherein a customer continues paying the dues. A loan becomes a non-performing asset (NPAs) if a customer does not pay the dues for 90 days.
Excess provisions from the sale of NPAs can be used to boost tier II capital, subject to an overall ceiling of 1.25% of the total risk weighted assets, RBI added. Tier II capital includes items such as undisclosed reserves, general loss reserves and subordinated term debt.
RBI has also permitted banks to voluntarily make specific provisions for NPAs at rates higher than that prescribed under existing regulations, to provide for estimated actual loss in collectible amount, if the policy is adopted consistently year to year.
“The additional provisions for NPAs, like the minimum regulatory provision on NPAs, may be netted off from gross NPAs to arrive at the net NPAs,’’ RBI added.