Date:26/10/2005 URL: http://www.thehindubusinessline.com/2005/10/26/stories/2005102603821200.htm

Back Provisioning norm may have little impact

Our Bureau

Chennai , Oct 25

THE Reserve Bank of India (RBI) has asked banks to increase a general provisioning for `standard advances' from the present level of 0.25 per cent to 0.40 per cent of loans.

This move may not have much of an impact.

The RBI had asked banks to maintain this provision of 0.25 per cent, a few years ago, as a prudential measure - a kind of cushion that banks build on when the going is good.

The RBI move may see banks having to increase their provisioning by nearly Rs 2,000 crore. However, this may not necessarily have to be made by making fresh provisioning.

Merely reclassifying a portion of floating provisioning (maintained for facing any kind of contingency) could see the banks manage the situation comfortably.

Such floating provisioning could at least be about Rs 2,000 crore (For instance, Canara Bank alone held floating provisions of Rs 664 crore).

That is, if we assume that a mere 5 per cent of the existing provisions of Rs 38,000 crore are floating provisions.