Provision of 0.25% for standard assets of NBFCs
Reserve Bank of India, DNBS vide Notification No.RBI/2010-11/370-DNBS.PD.CC.No.207/ 03.02.002/2010-11, dt.January 17, 2011 addressed to all NBFC’s has modified the prudential norms for NBFC’s.
RBI has directed, both deposit and non-deposit taking NBFCs to set aside 0.25 per cent of performing loans/standard assets, to meet any financial exigencies.
This is in par with Banks.
What are Standard Assets ?
Standard assets comprise those loans on which interest has been regularly by the borrowers and the possibility of default is remote.
The major highlight of the Notification is
“In the interests of counter cyclicality and so as to ensure that NBFCs create a financial buffer to protect them from the effect of economic downturns, it has been decided to introduce provisioning for standard assets also”, RBI said in its notification.
The Notification can be accessed @
http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=6217&Mode=0
Top 5 proposition’s of this Notification.
01) The Provision Standards is now common for both Banks and NBFCs
02) The cost of loan is likely to go up.
03) A financial buffer for NBFCs will automatically be created
04) A minor change in the accounting software will be required, to automate this process
05) The whole credit cycle will further be tightened.
Simple Financial Mantras 