Question
According to RBI’s prudential norms, what is the
general provisioning requirement for substandard assets (ignoring ECGC guarantee cover and securities available)?Solution
Under RBI’s Income Recognition and Asset Classification (IRAC) norms, banks are required to make general provisions against non-performing assets (NPAs). For substandard assets (i.e., accounts classified as NPAs for less than or equal to 12 months): • A general provision of 15% of the total outstanding is mandated. • This provision is calculated without considering any ECGC (Export Credit Guarantee Corporation) guarantee cover or the value of securities available. • The intent is to create a buffer against potential losses, ensuring that banks remain adequately capitalized and risk-resilient. Therefore, the required general provision is 15%.
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