What changed
The Government of India will now pay interest on second and subsequent instalments of eligible amounts under the scheme at the prevailing Yield to Maturity rate on 364-day Government of India Treasury Bills, from the date of reimbursement of the first instalment (November 2008) until each instalment is actually reimbursed. Consequently, RBI has withdrawn the earlier requirement for banks to provision for present value loss on government receivables under the scheme, superseding specific paragraphs of the July 30, 2008 circular.
What it means for you
StCBs and DCCBs no longer need to set aside capital for PV losses on government dues under the Debt Waiver and Debt Relief Scheme, easing their provisioning burden. This improves their reported asset quality and capital adequacy ratios, as the government has guaranteed interest on delayed instalments. All other prudential norms from the earlier circular remain in force.
What you must do
- Stop making present value loss provisions on government receivables under the Debt Waiver and Debt Relief Scheme, 2008.
- Update your internal provisioning policies to reflect the exemption for government dues under this scheme.
- Ensure compliance with all other unchanged conditions from the July 30, 2008 circular on income recognition, asset classification, and capital adequacy.
- Track the interest payments from the government on later instalments at the 364-day T-bill yield rate for accurate income recognition.
Who it affects
All State Co-operative Banks (StCBs), All District Central Co-operative Banks (DCCBs)
What is the interest rate the government will pay on later instalments?
The government will pay interest at the prevailing Yield to Maturity rate on 364-day Government of India Treasury Bills, from November 2008 until the actual reimbursement of each instalment.
Does this circular change any other prudential norms?
No. Only the provisioning requirement for present value loss on government receivables has been removed. All other conditions in the July 30, 2008 circular remain unchanged.