StCBs/DCCBs: No PV Loss Provision on Govt Dues Under Debt Waiver Scheme

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 Consequently, RBI has withdrawn the earlier requirement for banks to provision for present value loss on government receivables under the scheme, superseding specific paragraphs of the July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 banks were required to do at the time

• 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)