RBI Revises Norms on Government-Guaranteed Security Receipts

The Reserve Bank of India (RBI) has introduced new guidelines for Government of India-guaranteed Security Receipts (SRs) issued by Asset Reconstruction Companies (ARCs). These regulations aim to differentiate sovereign-backed SRs from ordinary SRs, providing banks with greater flexibility in provisioning while ensuring stricter capital discipline. The move is expected to streamline bad loan resolutions, enhance investor confidence, and strengthen financial stability.

Key Provisions of the Circular

Reversal of Excess Provisions

  • Banks can reverse excess provisions to their Profit & Loss (P&L) account.
  • This applies only if the sale consideration is received in cash and government-guaranteed SRs.

Capital Treatment of SRs

  • Non-cash SRs must be deducted from Common Equity Tier 1 (CET1) capital.
  • Ensures unrealized gains do not inflate capital reserves.
  • Banks cannot distribute dividends from this portion of capital.

Revised Valuation Methodology

  • Government-backed SRs must be valued periodically based on Net Asset Value (NAV) declared by ARCs.
  • Adjustments will be linked to recovery ratings.
  • Unrealized fair valuation gains must be deducted from CET1 capital, restricting dividend payouts.

Differentiation from Previous Norms

  • The 2021 Master Direction on Transfer of Loan Exposures (MD-TLE) applied uniform regulations to all SRs.
  • The new guidelines recognize the lower risk profile of government-backed SRs and optimize provisioning while maintaining prudent capital buffers.

Entities Covered Under the Circular

  • Commercial Banks (including Small Finance Banks, Regional Rural Banks, and Local Area Banks)
  • Cooperative Banks (urban, state, and central)
  • All-India Financial Institutions (AIFIs)
  • Non-Banking Financial Companies (NBFCs), including Housing Finance Companies (HFCs)

Impact on the Banking Sector

  • Enhancing Investor Confidence
  • Encourages greater participation in ARC transactions involving government-backed SRs.
  • Expediting Stressed Asset Resolutions
  • Provides a clearer valuation methodology, making transactions more transparent and efficient.

Strengthening Capital Discipline

  • Prevents premature dividend payouts from unrealized valuation gains.
Summary/Static Details
Why in the news? RBI Revises Norms on Government-Guaranteed Security Receipts to Strengthen Bad Loan Resolutions
Provisioning Banks can reverse excess provisions if SRs are government-backed and received in cash.
Capital Treatment Non-cash SRs to be deducted from CET1 capital; no dividend payouts from unrealized gains.
Valuation Periodic valuation of government-backed SRs based on NAV and recovery ratings.
Entities Covered Commercial banks, cooperative banks, AIFIs, NBFCs, HFCs.
Expected Impact Boosts investor confidence, accelerates loan resolutions, ensures capital discipline.
Shivam

Recent Posts

IHMCL, NFSU Join Hands to Safeguard Digital Highway Operations

Indian Highways Management Company Limited (IHMCL) signed a key agreement with the National Forensic Sciences…

6 mins ago

Dhaka Court Sentences Former PM Sheikh Hasina to 10 Years in Corruption Cases

On February 2, 2026, a Dhaka court sentenced former Prime Minister Sheikh Hasina to 10…

22 mins ago

Which Indian Place is known as the Land of Clouds?

India is a land of many natural wonders, from hot deserts to snowy mountains. In…

24 mins ago

Which Island is known as the Island of Fire? Check the Name

Islands around the world are often named after their most striking natural features. Some gain…

1 hour ago

Kabak Yano from Arunachal Pradesh Conquers This Western Hemisphere’s Highest Peak

Indian mountaineer Kabak Yano successfully summited Mount Aconcagua in Argentina, the highest peak in South…

1 hour ago

NSO Announces Countrywide Migration Survey to Update Migration Data

The National Statistics Office (NSO) has announced a nationwide Survey on Migration, scheduled from July…

2 hours ago