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      Question

      The Reserve Bank of India (RBI) has issued new norms for

      the uniform treatment of Bad and Doubtful Debt Reserve (BDDR) for nonperforming assets (NPAs) across cooperative banks. Which of the following statements is true regarding these revised norms?
      A Provisions for NPAs can be created by appropriating from net profit and do not need to be recognized as expenses in the Profit & Loss (P&L) account. Correct Answer Incorrect Answer
      B From FY25, provisions for NPAs must be charged as an expense to the Profit & Loss (P&L) account in the period they are recognized. Correct Answer Incorrect Answer
      C By March 31, 2025, provisions for NPAs must be identified and reported as a separate item in the balance sheet. Correct Answer Incorrect Answer
      D The norms do not apply to Urban Cooperative Banks but only to State Cooperative Banks and Central Cooperative Banks. Correct Answer Incorrect Answer
      E Provisions for NPAs can be directly netted off from Gross NPAs (GNPAs) without affecting the P&L account. Correct Answer Incorrect Answer

      Solution

      The RBI's revised norms stipulate that starting from FY25, provisions for NPAs must be recognized as expenses in the Profit & Loss (P&L) account in the period they are incurred. This marks a shift from previous practices where such provisions could be created from net profit rather than being directly charged to the P&L account. These norms aim to ensure uniform treatment and prudential management of NPAs across different types of cooperative banks.

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