What changed
The general provisioning requirement for standard assets has been increased from 0.25% to 0.40% for UCBs with a deposit base of ₹100 crore or more (fortnightly average of previous year) and for all UCBs operating in more than one district. Direct agricultural and SME advances continue to attract 0.25% provisioning. Smaller UCBs (single district, deposits below ₹100 crore) retain the old 0.25% rate.
What it means for you
Larger UCBs will need to set aside more capital for performing loans, reducing their net interest margin slightly. This is a counter-cyclical measure to build buffers during credit booms, protecting balance sheets when the cycle turns. The exemption for agri and SME loans supports priority sector lending. The higher provisioning can still be counted as Tier II capital up to permitted limits.
What you must do
- Recalculate standard asset provisioning at 0.40% for all eligible advances (excluding agri and SME) immediately.
- Identify your bank's deposit base using the fortnightly average of demand and time liabilities for the previous financial year to confirm applicability.
- Update internal provisioning policies and reporting systems to reflect the new 0.40% rate for affected portfolios.
- Ensure that the additional provisions are correctly classified for Tier II capital inclusion as per existing norms.
Who it affects
Urban Co-operative Banks with deposit base of ₹100 crore or more, UCBs operating in more than one district, Unit banks and multi-branch UCBs within a single district meeting the deposit threshold, Smaller UCBs (single district, deposits below ₹100 crore) are exempt
Which loans are exempt from the higher 0.40% provisioning?
Direct advances to agriculture and SME sectors that are standard assets continue to attract the old 0.25% provisioning rate.
How is the deposit base threshold of ₹100 crore calculated?
It is based on the fortnightly average of demand and time liabilities in the immediately preceding financial year.
Can the additional provisioning be counted as capital?
Yes, these provisions are eligible for inclusion in Tier II capital for capital adequacy purposes, up to the permitted extent, as before.