What changed
RBI noticed some AIFIs were using floating provisions to make specific provisions by writing them back above the line. Now, AIFIs must follow the same prudential norms on creation and utilisation of floating provisions as banks, as per earlier circulars from June 2006 and March 2007.
What it means for you
AIFIs can no longer freely use floating provisions to meet specific provisioning needs. They must treat these provisions as a buffer for extraordinary contingencies only, requiring board approval and RBI nod. This tightens provisioning discipline and aligns AIFIs with banking norms.
What you must do
- Review your current use of floating provisions and ensure compliance with bank guidelines.
- Obtain board approval and prior RBI permission before using floating provisions for specific impaired accounts.
- Update internal policies to restrict floating provision utilisation to extraordinary circumstances only.
- Acknowledge receipt of this circular to RBI.
Who it affects
Exim Bank, NABARD, NHB, SIDBI, All-India Financial Institutions (AIFIs)
Can AIFIs still use floating provisions for routine provisioning?
No. Floating provisions can only be used for specific provisions in impaired accounts under extraordinary circumstances, with board approval and prior RBI permission.
What happens if an AIFI has already used floating provisions incorrectly?
The circular does not specify penalties, but AIFIs must immediately align with the new norms and seek RBI guidance if needed.
Are these norms new for AIFIs?
Yes, this circular extends existing bank guidelines on floating provisions to AIFIs for the first time, effective from January 5, 2010.