What changed
Previously, Tier II Salary Earners' (Urban) Co-operative Banks (SEBs) had to provision 2% on personal loans under standard assets. Now, the rate for personal loans is reduced to 0.4%, while other high-risk categories like capital market exposure and commercial real estate loans stay at 2%. Tier I SEBs continue with 0.25% for most categories.
What it means for you
This relief reduces provisioning burden for Tier II SEBs on personal loans, freeing up capital for lending. However, banks must still maintain higher provisions for riskier assets like capital market exposures and commercial real estate. The move acknowledges the unique loan profile of salary earners' banks.
What you must do
- Update provisioning rates for standard assets as per the new table for Tier II SEBs.
- Ensure personal loans are provisioned at 0.4% instead of 2% for Tier II SEBs.
- Maintain 2% provisioning for capital market exposures, commercial real estate, and loans to systemically important NBFCs-ND.
- Communicate the revised rates to your finance and risk teams immediately.
Who it affects
Salary Earners' (Urban) Co-operative Banks (SEBs), Tier II SEBs (as defined in circular UBD (PCB). Cir.No.35 /09.20.001/07-08 dated March 7, 2008), Tier I SEBs (not affected but should note unchanged rates)
What is the new provisioning rate for personal loans for Tier II SEBs?
The rate is reduced from 2% to 0.4% for standard assets in personal loans.
Does this change apply to all standard assets for Tier II SEBs?
No. Only personal loans get the reduced rate. Capital market exposures, commercial real estate loans, and loans to systemically important NBFCs-ND remain at 2%.
When are these revised instructions effective?
They are applicable with immediate effect from May 26, 2008.