RBI Revises NPA Provisioning Norms for Cooperative Banks

The Reserve Bank of India (RBI) has issued revised instructions for the treatment of Bad and Doubtful Debt Reserve (BDDR) across cooperative banks, aiming for uniformity in the accounting and prudential treatment of non-performing assets (NPAs). These new norms will apply to Urban Co-operative Banks, State Cooperative Banks, and Central Co-operative Banks, effective immediately. A one-time transition measure has been introduced to facilitate a smoother shift to the new accounting standards.

Key Changes and Implementation

Immediate Effect: The revised norms come into force immediately for all cooperative banks.

Expense Recognition: From FY25, provisions for NPAs must be charged as an expense to the Profit & Loss (P&L) account in the accounting period they are recognized.

Regulatory Capital: Provisions for regulatory capital will continue to follow existing capital adequacy norms.

Transition Measures

Identification and Quantification: Banks need to identify and quantify BDDR balances as of March 31, 2024, reflecting provisions made in previous years.

Reallocation of Provisions: By March 31, 2025, provisions should be appropriated directly from the P&L Account or General Reserves. They can be netted off from Gross NPAs (GNPAs) to calculate Net NPAs (NNPAs).

Handling Unnecessary Balances: Excess BDDR balances not required for provisions can be transferred to General Reserves or the P&L Account.

Capital Treatment

Tier 1 Capital: After adjustments, BDDR balances can be considered as Tier 1 capital.

Non-Reduction from NPAs: BDDR balances should not be used to reduce Gross NPAs for calculating Net NPAs.