What changed
The uniform provisioning requirement for standard assets was increased from 0.25% to 0.40% of funded outstanding on a portfolio basis. Direct advances to agriculture and SME sectors remain exempted at the old 0.25% rate.
What it means for you
Banks must now set aside more capital for performing loans, reducing net interest margins slightly but building a buffer against future downturns. This counter-cyclical measure addresses the tendency to underestimate risk during credit booms. Lenders with high standard asset growth will feel the impact most.
What you must do
- Recalculate provisioning for all standard advances at 0.40%, excluding direct agri and SME loans.
- Update internal prudential guidelines and reporting systems to reflect the new provisioning rate.
- Communicate the change to credit and risk teams to adjust loan pricing or capital planning.
- Acknowledge receipt of this circular to the respective RBI Regional Office (as directed to RRBs).
Who it affects
All Regional Rural Banks (primary addressees), Commercial banks (implied by policy scope but not directly addressed in this circular)
Which loans are exempt from the higher 0.40% provisioning?
Direct advances to agriculture and SME sectors continue to attract the old 0.25% provisioning rate.
Why did RBI increase the provisioning requirement?
To address pro-cyclicality in lending—during credit booms, risk is often underestimated. Higher provisioning builds a cushion for when the economy slows or credit weaknesses emerge.
Does this apply to all standard assets or only new loans?
It applies to the entire funded outstanding of standard assets on a portfolio basis, not just new loans.