What changed
RBI now permits banks to transfer credit balances from blocked accounts (entries up to March 31, 2002, under USD 2500) to P&L, appropriated to general reserve, not for dividends. Debit entries of same value and period can be written off against existing provisions. For entries from April 1, 2002, provisioning for unreconciled debits is tightened to 2 years (from 3), and credit entries over 3 years go to blocked account counting for CRR/SLR.
What it means for you
Banks can clean up small-value nostro legacy items without hitting distributable profits, improving balance sheet hygiene. However, the stricter 2-year provisioning rule for newer debits increases operational pressure to reconcile faster. The requirement to honor future claims on transferred credits keeps contingent risk alive.
What you must do
- Identify and aggregate credit entries under USD 2500 originated up to March 31, 2002 in blocked accounts for transfer to P&L and general reserve.
- Write off corresponding debit entries under USD 2500 of same period against existing provisions, with board-approved policy.
- Adjust provisioning systems to flag unreconciled debit entries from April 1, 2002 after 2 years for 100% provision.
- Transfer credit entries from April 1, 2002 outstanding over 3 years to blocked account and include in CRR/SLR computation.
- Review and minimize number of nostro accounts, and implement automated reconciliation tools with top management monitoring.
Who it affects
All commercial banks excluding RRBs, Treasury and reconciliation teams, Finance and accounts departments, Risk management and compliance functions
Can we use the transferred credit balance for dividend distribution?
No, the amount credited to P&L from blocked accounts must be appropriated to general reserve and cannot be used for declaring dividends.
What is the new provisioning timeline for nostro debit entries?
For entries originated on or after April 1, 2002, 100% provision is required if unreconciled for more than 2 years, reduced from the earlier 3 years.
Do we still need to honor claims on credit entries transferred to P&L?
Yes, any future claim in respect of these entries must be honored, so maintain adequate records and contingency provisions.