What changed
Previously, floating provisions could only be used with RBI's prior approval. This circular permits banks to discretionarily utilise floating provisions held for advances to cover interest/charges they are required to bear under the Agricultural Debt Waiver and Debt Relief Scheme, 2008, such as unapplied interest, penal interest, and legal charges.
What it means for you
Banks can now absorb the cost of waived interest and charges under the scheme without seeking RBI's nod each time, easing their immediate provisioning burden. However, floating provisions cannot be used for any other provisioning needs without RBI approval, maintaining discipline. This is a one-time relief tied to the extraordinary circumstances of the scheme.
What you must do
- Identify the floating provisions held for the advances portfolio.
- Calculate the total interest/charges (unapplied interest, penal interest, legal charges, etc.) borne under the Agricultural Debt Waiver and Debt Relief Scheme, 2008.
- Utilise floating provisions only to the extent of these scheme-related costs, at your discretion.
- Ensure floating provisions are not used for any other provisioning requirements without prior RBI approval.
Who it affects
All Scheduled Commercial Banks (including Local Area Banks), Banks implementing the Agricultural Debt Waiver and Debt Relief Scheme, 2008
Can we use floating provisions for other provisioning needs under this circular?
No. The circular explicitly states that floating provisions should not be utilised for meeting any other provisioning requirements without RBI's prior approval, as was the case earlier.
What specific charges can be covered using floating provisions?
The circular allows coverage of interest in excess of principal, unapplied interest, penal interest, legal charges, inspection charges, and miscellaneous charges that banks are required to bear under the scheme.
Is prior RBI approval needed to use floating provisions for this purpose?
No. Banks can use their discretion to utilise floating provisions for these scheme-related interest/charges without seeking prior RBI approval.