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FIRST NOTES
KPMG IN INDIA

RBI circular on utilisation of floating
provisions

First Notes on:
Financial Reporting
Corpora...
KPMG in India

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Safal Profitaire
B4 3rd Floor, Corporate Road,
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RBI circular on utilisation of floating provisions

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The Reserve Bank of India (RBI) has released a circular dated 7 February 2014, under which it has permitted banks to utilise up to 33 per cent of countercyclical provisioning buffer/floating provisions held by them as on 31 March 2013, for making specific provisions for non-performing assets, as per the policy approved by their Board of Directors.

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Transcript of "RBI circular on utilisation of floating provisions"

  1. 1. FIRST NOTES KPMG IN INDIA RBI circular on utilisation of floating provisions First Notes on: Financial Reporting Corporate law updates Regulatory and Other Information Disclosures Sector: All Banking and Insurance Information, Communication, Entertainment Consumer and Industrial Markets Infrastructure and Government Relevant to: All Audit committee CFO Others Transition: Immediately Within the next 3 months Post 3 months but within 6 months Post 6 months 10 February 2014 The Reserve Bank of India (RBI) had issued a master circular dated 2 July 2012, which consolidated instructions/ guidelines issued to banks till 30 June 2012 on matters relating to prudential norms on income recognition, asset classification and provisioning pertaining to advances, including creation and utilisation of ‘countercyclical provisioning buffer’/’floating provisions’. provisions under this measure may be over and above the utilisation of countercyclical provisioning buffer/floating provisions for the purpose of making accelerated/additional provisions as proposed in the Reserve Bank’s Press Release dated 30 January 2014 on ‘Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalising Distressed Assets in the Economy’. The RBI vide its circular dated 7 February 2014, has decided that as a countercyclical measure, banks may utilise upto 33 per cent of countercyclical provisioning buffer/floating provisions held by them as on 31 March 2013, for making specific provisions for non-performing assets, as per the policy approved by their Board of Directors. The current circular also emphasises that banks in accordance with the Discussion Paper on ‘Introduction of Dynamic Loan Loss Provisioning Framework for banks in India’ dated 30 March 2012, should develop necessary capabilities to have a dynamic loan loss provisioning framework in place which would enable banks to build up ‘Dynamic Provisioning Account’ during good times and utilise the same during downturn. It is further clarified that the utilisation of countercyclical provisioning buffer/floating Our comments The master circular dated 2 July 2012 issued by the RBI, mentioned the circumstances under which the floating provisions could be utilised for making specific provisions in impaired accounts. As a result, due to the significant deterioration in the credit quality of the assets experienced by most of the banks, the current circular permits banks to utilize the floating provisions which were created in the earlier years to meet the provisions for non-performing assets. The RBI has tried to take a balanced view by requesting banks to develop necessary capabilities to compute their long term average annual expected loss for different asset classes, for switching over to the dynamic provisioning framework, as per the discussion paper issued in 2012. The bottom line • The RBI has provided banks with some relief from the higher level of provisions that is being witnessed in the banking system currently. • The RBI has also highlighted the need to have a system in place to meet such exigencies in the future. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
  2. 2. KPMG in India Useful Links Ahmedabad Safal Profitaire B4 3rd Floor, Corporate Road, Opp. Auda Garden, Prahlad Nagar Ahmedabad – 380 015 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Bangalore Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Kochi 4/F, Palal Towers M. G. Road, Ravipuram, Kochi 682 016 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Kolkata Unit No. 603 – 604, 6th Floor, Tower 1, Godrej Waterside, Sector – V, Salt Lake, Kolkata – 700091 Tel: +91 33 44034000 Fax: +91 33 44034199 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3058 5764/65 Fax: +91 20 3058 5775 Back issues are available to download from: www.kpmg.com/in www.kpmg.com/in The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. This document is means for ecommunication2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative © only. (“KPMG International”), a Swiss entity. All rights reserved.

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