The Reserve Bank of India has asked all non-banking finance companies to make a provision of 0.25 per cent on standard assets. Till now, NBFCs had to make provisions only for non-performing assets.
“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.
NBFCs have been asked to make a general provision at 0.25 per cent on outstanding standard assets.
The RBI said that the provisions on standard assets should not be reckoned for arriving at net NPAs. On treatment of the provision, the RBI said that the provision towards standard assets need not be netted from gross advances but shown separately as ‘contingent provisions against standard assets' in the balance sheet.
NBFCs have been allowed to include the provision on standard assets in Tier II capital. This provision along with other general provisions and loss reserves will be admitted as Tier II capital only up to a maximum of 1.25 per cent of the total risk-weighted assets, the notification said.