What changed
The general provisioning requirement for standard advances was increased from 0.25% to 0.40% of funded outstanding, effective from the financial year beginning April 1, 2007. Direct advances to agriculture and SME sectors were exempted from this hike, retaining the 0.25% rate.
What it means for you
Co-operative banks must set aside more capital for performing loans, reducing distributable profits and potentially slowing credit growth. The move aims to cushion balance sheets during economic downturns by recognizing risks earlier. Exemptions for agri and SME loans support priority sector lending.
What you must do
- Update provisioning policies to apply 0.40% on all standard advances except direct agri and SME loans.
- Calculate additional provisioning impact on P&L and capital adequacy for FY 2007-08.
- Ensure systems classify standard assets correctly to apply the correct provisioning rate.
- Communicate the change to branches and credit teams for accurate reporting.
Who it affects
State Co-operative Banks (StCBs), District Central Co-operative Banks (DCCBs), Co-operative bank credit and risk departments, Borrowers in non-agri, non-SME sectors
When does the new 0.40% provisioning take effect?
From the financial year beginning April 1, 2007, as per the RBI circular dated December 20, 2005.
Are agricultural and SME loans exempt from the higher provisioning?
Yes, direct advances to agriculture and SME sectors that are standard assets continue to attract 0.25% provisioning, unchanged from the earlier rate.