Banks allowed to use one-third of buffer provisioning for NPAs

The Reserve Bank of India (RBI) on Friday allowed lenders to use one-third of their provisioning buffer for non-performing assets (NPAs) or bad loans.

"...it has been decided, as a countercyclical measure, that banks may utilise up to 33 per cent of countercyclical provisioning buffer/floating provisions held by them as on March 31, 2013, for making specific provisions for non-performing assets, as per the policy approved by their Board of Directors," the RBI said in a notification.

As per the extant guidelines, banks are directed to use this buffer for specific provisions for NPAs during periods of system wide downturn, with the prior approval of the apex bank.

The RBI further said that utilisation of this buffer could be made for additional provisions for financial distress, prompt steps to resolve it, and fair recovery for lenders and investors.

Banks are required to build up a 'dynamic provisioning account' during good times and utilise the same during downturn.