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Floating Provisions: RBI Defers NPA Netting Rule Change

No longer current — withdrawn, no replacement on file yet
Source: Reserve Bank of India · RBI/2009-10/132 · issued 27 Aug 2009 · ~2 min read
Quick answerRBI has deferred the rule that would have stopped banks from netting floating provisions against gross NPAs. Banks can still choose to deduct floating provisions from gross NPAs or include them in Tier II capital, subject to the 1.25% of RWA cap.

What changed

RBI had earlier directed that from FY 2009-10, floating provisions could no longer be netted from gross NPAs to arrive at net NPAs. Now, citing ongoing global work on counter-cyclical provisioning by FSB, BCBS, and CGFS, RBI has deferred that change until further notice. Banks retain the existing flexibility to either net floating provisions from gross NPAs or count them as Tier II capital.

What it means for you

Banks get continued relief on capital and NPA reporting flexibility. They can keep using floating provisions to reduce reported net NPAs, which helps manage asset quality perception. The deferral also means Tier II capital treatment remains optional, not mandatory, giving banks room to optimize capital ratios until global norms are finalized.

Historical instruction — do not use for current compliance. This is what was required at the time; it no longer reflects current RBI requirements. If no replacement rule is linked above, that only means none is recorded on our register yet — it does not prove no later applicable rule exists. Confirm on the official RBI source below.

What banks were required to do at the time

Who it affects

All scheduled commercial banks (excluding RRBs), Local Area Banks, Risk management and finance teams handling NPA provisioning and capital adequacy

❓ Common questions

Regulatory timeline

Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).

Can we still net floating provisions from gross NPAs?

Yes, RBI has deferred the earlier rule that would have disallowed this. You can continue to choose between netting from gross NPAs or including in Tier II capital, subject to the 1.25% of RWA cap.

Why did RBI defer this change?

Global bodies like FSB, BCBS, and CGFS are still working on counter-cyclical provisioning norms. RBI decided to wait for those outcomes before modifying existing provisioning rules.

What is the 1.25% ceiling for Tier II capital?

If you choose to include floating provisions in Tier II capital, the total amount cannot exceed 1.25% of your bank's total risk-weighted assets.

📜 This document’s life story (1 recorded event, each backed by RBI’s own words)
Repealed by RBI/2025-26/100 — Consolidation of Regulations — Withdrawal of circulars (28 Nov 2025)
RBI’s words: “Official withdrawal register entry #1834: DBOD.No.BP.BC.33/21.04.048/2009-10 — "Prudential Treatment in respect of Floating Provisions" dated August 27, 2009”
📜 Read the original circular — full text as issued by RBI
RBI/2009-10/132 DBOD.No.BP.BC. 33/21.04.048/2009-10 August 27, 2009 The Chairman and Managing Directors / Chief Executive Officers All Scheduled Commercial Banks (including Local Area Banks) (Excluding RRBs) Dear Sir, Prudential Treatment in respect of Floating Provisions Please refer to paragraph (iv) of our circular DBOD.No.BP.BC. 118/21.04.048/2008-09 dated March 25, 2009 and also, our circular DBOD.No.BP.BC.122/21.04.048/2008-09 dated April 9, 2009, in terms of which, banks have been advised that, with effect from the financial year 2009-10, floating provisions cannot be netted from gross NPAs to arrive at net NPAs, but could be reckoned as part of Tier II capital subject to the overall ceiling of 1.25% of total Risk Weighted Assets. 2. As mentioned in our circular dated April 9, 2009, the Financial Stability Board (FSB), Basle Committee on Banking Supervision (BCBS) and Committee on Global Financial System (CGFS), along with accounting standard setters, are working out detailed measures to mitigate procyclicality, including a counter cyclical provisioning regime based on macro-prudential considerations. This work is likely to take some more time. 3. As and when the existing provisioning norms are modified based on the above work in progress, a fresh look in the matter will have to be taken. In view of this, it has been decided to defer the implementation of paragraph (iv) of the circular dated March 25, 2009 ibid until further advice. Accordingly, banks will continue to have the choice between deducting their existing floating provisions from gross NPAs to arrive at net NPAs or reckoning it as part of Tier II capital subject to the overall ceiling of 1.25% of total Risk Weighted Assets. Yours faithfully (B. Mahapatra) Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2009-10/132 · issued 27 Aug 2009. The plain-English explanation above is BankPulse’s own independent summary.
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Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=5234&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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