What changed
Earlier, banks could use only up to 33% (as of March 2013) and 50% (as of December 2014) of these buffers. Now, the cap is raised to 100% of the buffer held as on December 31, 2020, and prior RBI approval is replaced by board approval.
What it means for you
This move helps banks conserve capital by allowing them to dip into existing buffers to cover COVID-19-related NPAs without eroding core capital. It provides immediate relief for asset quality stress, but banks must ensure board-approved policies govern such utilisation.
What you must do
- Review your floating provisions and countercyclical provisioning buffer balances as on December 31, 2020.
- Obtain board approval for utilisation up to 100% of these buffers for specific NPA provisions.
- Ensure utilisation is completed by March 31, 2022, and align with your board-approved policy.
- Maintain proper documentation and disclosures as per earlier RBI guidelines on floating provisions.
Who it affects
All Scheduled Commercial Banks (excluding Regional Rural Banks and Payments Banks)
Can we use these buffers without RBI's prior approval now?
Yes, prior RBI approval is no longer required; board approval suffices for utilisation up to 100% of the buffer held as on December 31, 2020.
What is the deadline for utilising these provisions?
The facility is available with immediate effect and must be used by March 31, 2022.
Does this apply to RRBs and Payments Banks?
No, the circular explicitly excludes Regional Rural Banks and Payments Banks.