Home › Circulars › RBI/2022-23/61

RBI mandates differential standard asset provisioning for NBFC-UL

Current · Source: Reserve Bank of India · RBI/2022-23/61 · issued 06 Jun 2022 · ~2 min read
Quick answerNBFCs in the Upper Layer must now hold graded provisions on standard assets: 0.25% for home loans and SME loans, 2% for teaser-rate home loans (reducing to 0.40% after reset), 0.75% for CRE-RH, 1% for other CRE, and 0.40% for other loans. Ind AS NBFCs must maintain a prudential floor.
The rule, in the simplest words
How it plays out — a real example

An NBFC compliance officer in Indore, Priya, reviews her NBFC-UL's standard asset portfolio. She sees a teaser-rate home loan of ₹10 lakh, so she sets aside 2% (₹20,000) as provision, knowing it will drop to 0.40% (₹4,000) after the rate resets next year. She also notes a commercial real estate loan for a small office building, requiring 1% provision, and updates her system to track these new rates for all standard assets.

What changed

RBI has prescribed specific provisioning rates for standard assets held by NBFC-Upper Layer entities, replacing the earlier uniform approach. The rates vary by asset category: individual housing and SME loans at 0.25%, teaser-rate housing loans at 2% (dropping to 0.40% after reset), CRE-RH at 0.75%, other CRE at 1%, and all other loans at 0.40%. Restructured advances follow existing prudential norms. Derivative exposures also attract standard asset provisioning.

What it means for you

NBFC-ULs must recalibrate their provisioning buffers, especially for teaser-rate home loans and CRE exposures, which carry higher rates. This increases the cost of holding these assets and may impact profitability and capital planning. Ind AS-compliant NBFCs must ensure impairment allowances meet the new prudential floor, though these provisions cannot be used to calculate net NPAs.

What you must do

Who it affects

All NBFCs classified as Upper Layer (NBFC-UL), Housing Finance Companies in the Upper Layer, NBFCs with net worth of ₹250 crore or more following Ind AS

❓ Common questions

What is the provisioning rate for teaser-rate housing loans after one year?

After one year from the date the teaser rate is reset to a higher rate, if the account remains standard, the provisioning rate reduces from 2% to 0.40%.

How is Commercial Real Estate – Residential Housing (CRE-RH) defined?

CRE-RH includes loans to builders/developers for residential housing projects, excluding captive consumption. If commercial space exceeds 10% of total FSI, the entire loan is classified as CRE (not CRE-RH).

Do these provisions apply to derivative transactions?

Yes, current credit exposures from permitted derivative transactions attract the same provisioning rate as the standard asset category of the counterparty.

📜 Read the original circular — full text as issued by RBI
Notifications - Reserve Bank of India Skip to main content Selected Selected Change Language हिंदी Search the Website Search Home About Us ▼ About Us Organisation & Functions ▶ Organisation Structure Departments Offices Training Establishment ▶ College of Agricultural Banking Reserve Bank Staff College College of Supervisors RBI's Functions and Working Governors Deputy Governors Executive Directors Communication Policy of RBI Sources of Information ▶ Annual Publications Half-yearly Publications Quarterly Publications Monthly Publications Weekly Publications Occasional Publications SDDS NSDP Data Releases Publications available on Subscription General Information RBI History Museum ▶ The RBI Museum RBI Monetary Museum Notification ▼ Notifications Master Directions Master Circulars Amendment Directions Draft Notifications/Guidelines ▶ Draft Notifications/Guidelines Draft Directions (RE-wise) Index To RBI Circulars Standalone Circulars Circulars Withdrawn Press Releases Speeches & Media Interactions ▼ Speeches Media Interactions Memorial Lectures Podcasts Publications ▼ Biennial Annual Half-Yearly Quarterly Bi-monthly Monthly Weekly Occasional Reports Working Papers Legal Framework ▼ Act Rules Regulations Schemes Research ▼ External Research Schemes RBI Occasional Papers Working Papers RBI Bulletin History DRG Studies KLEMS State Statistics and Finances Statistics ▼ Data Releases Database on Indian Economy Public Debt Statistics Regulatory Reporting ▼ List of Returns Data Definition Validation rules/ Taxonomy List of RBI Reporting Portals FAQs of RBI Reporting Portals Home Notifications Notifications ( 183 kb ) Provisioning for Standard assets by Non-Banking Financial Company – Upper Layer RBI/2022-23/61 DOR.STR.REC.40/21.04.048/2022-23 June 6, 2022 All Non-Banking Financial Companies (Including Housing Finance Companies) Madam / Dear Sir, Provisioning for Standard assets by Non-Banking Financial Company – Upper Layer Please refer to the circular DOR.CRE.REC.No.60/03.10.001/2021-22 dated October 22, 2021 on “Scale Based Regulation (SBR): A Revised Regulatory Framework for NBFCs” wherein it was inter alia mentioned that RBI would issue guidelines on differential provisioning to be held by NBFCs classified as NBFC-Upper Layer (NBFC-UL) towards different classes of standard assets. 2. Accordingly, it has been decided that NBFCs classified as NBFC-UL shall maintain provisions in respect of ‘standard’ assets at the following rates for the funded amount outstanding: Category of Assets Rate of Provision Individual housing loans and loans to Small and Micro Enterprises (SMEs) 0.25 per cent Housing loans extended at teaser rates 2.00 per cent, which will decrease to 0.40 per cent after 1 year from the date on which the rates are reset at higher rates (if the accounts remain ‘standard’) Advances to Commercial Real Estate – Residential Housing (CRE - RH) Sector 0.75 per cent Advances to Commercial Real Estate (CRE) Sector (other than CRE-RH) 1.00 per cent Restructured advances As stipulated in the applicable prudential norms for restructuring of advances All other loans and advances not included above, including loans to Medium Enterprises 0.40 per cent 3. Current credit exposures arising on account of the permitted derivative transactions shall also attract provisioning requirement as applicable to the loan assets in the 'standard' category, of the concerned counterparties. All conditions applicable for treatment of the provisions for standard assets would also apply to the aforesaid provisions for permitted derivative transactions. 4. Since NBFCs with net worth of Rs. 250 crore or above are required to comply with Indian Accounting Standards (Ind AS) for the preparation of their financial statements, they shall continue to hold impairment allowances as required under Ind AS, subject to the prudential floor as prescribed under Paragraph 2 of the Annex to the circular DOR (NBFC).CC.PD.No.109/22.10.106/2019-20 dated March 13, 2020 . The above-mentioned provisions shall, however, be included in the computation of the prudential floor, but shall not be reckoned for calculating net NPAs. 5. For the purpose of these instructions, the following definitions / clarifications shall apply: The definition of the terms Micro Enterprises, Small Enterprises, and Medium Enterprises shall be as per the circular FIDD.MSME & NFS.BC.No.3/06.02.31/2020-21 dated July 2, 2020 on ‘Credit flow to Micro, Small and Medium Enterprises Sector’ as updated from time to time. Commercial Real Estate (CRE) would consist of loans to builders/ developers/ others for creation/acquisition of commercial real estate (such as office building, retail space, multi-purpose commercial premises, multi- tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction etc.) where the prospects for repayment, or recovery in case of default, would depend primarily on the cash flows generated by the asset by way of lease/rental payments, sale etc. Further, loans for third dwelling unit onwards to an individual will be treated as CRE exposure. Commercial Real Estate – Residential Housing (CRE–RH) is a sub-category of CRE that consist of loans to builders/ developers for residential housing projects (except for captive consumption). Such projects should ordinarily not include non-residential commercial real estate. However integrated housing project comprising of some commercial spaces (e.g. shopping complex, school etc.) can also be specified under CRE-RH, provided that the commercial area in the residential housing project does not exceed 10 per cent of the total Floor Space Index (FSI) of the project. In case the FSI of the commercial area in the predominantly residential housing complex exceed the ceiling of 10 per cent, the entire loan should be classified as CRE and not CRE-RH. Housing loans extended at teaser rates shall mean housing loans having comparatively lower rates of interest in the first few years after which the rates of interest are reset at higher rates. Current credit exposure is defined as the sum of the gross positive mark-to-market value of all derivative contracts with respect to a single counterparty, without adjusting against any negative marked-to-market values of contracts with the same counterparty. 6. These guidelines shall be effective from October 1, 2022. Yours faithfully, (Manoranjan Mishra) Chief General Manager 2026 All Months January February March April May June July August September October November December 2025 All Months January February March April May June July August September October November December 2024 All Months January February March April May June July August September October November December 2023 All Months January February March April May June July August September October November December 2022 All Months January February March April May June July August September October November December 2021 All Months January February March April May June July August September October November December 2020 All Months January February March April May June July August September October November December 2019 All Months January February March April May June July August September October November December 2018 All Months January February March April May June July August September October November December 2017 All Months January February March April May June July August September October November December Archives 2016 All Months January February March April May June July August September October November December 2015 All Months January February March April May June July August September October November December 2014 All Months January February March April May June July August September October November December 2013 All Months January February March April May June July August September October November December 2012 All Months January February March April May June July August September October November December 2011 All Months January February March April May June July August September October November December 2010 All Months January February March April May June July August September October November December 2009 All Months January February March April May June July August September October November December 2008 All Months January February March April May June July August September October November December 2007 All Months January February March April May June July August September October November December 2006 All Months January February March April May June July August September October November December 2005 All Months January February March April May June July August September October November December 2004 All Months January February March April May June July August September October November December 2003 All Months January February March April May June July August September October November December 2002 All Months January February March April May June July August September October November December 2001 All Months January February March April May June July August September October November December 2000 All Months January February March April May June July August September October November December 1999 All Months January February March April May June July August September October November December 1998 All Months January February March April May June July August September October November December 1997 All Months January February March April May June July August September October November December 1996 All Months January February March April May June July August September October November December 1995 All Months January February March April May June July August September October November December 1994 All Months January February March April May June July August September October November December 1993 All Months January February March April May June July August September October November December 1992 All Months January February March April May June July August September October November December 1991 All Months January February March April May June July August September October November December Top Back to previous page More Links : Bank Holidays Banking Glossary Citizen's Charter Complaints Contact Us COVID-19 Measures E-LMS Events FAQs Financial Education Forms IFSC/MICR Codes Important Websites Opportunities @ RBI RBI Clarifications RBI Kehta Hai RBI’s Vision and Values (1257 kb)--> Right to Information Act Tenders Follow RBI RSS Twitter YouTube Instagram Facebook LinkedIn © Reserve Bank of India. 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Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2022-23/61 · issued 06 Jun 2022. The plain-English explanation above is BankPulse’s own independent summary.
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Who does what — compliance checklist
🏦 Branch Manager
  • Review derivative exposures and set aside provisions as per counterparty asset classification.
💰 Credit
  • Classify all standard assets into the specified categories and apply the new provisioning rates from the effective date.
  • Update provisioning policies and systems to handle the differential rates, including the teaser-rate transition from 2% to 0.40%.
📜 Compliance
  • For Ind AS NBFCs, compute the prudential floor as per the March 2020 circular and ensure impairment allowances meet or exceed it.
  • Train credit and risk teams on the new definitions for CRE, CRE-RH, and MSME categories.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template

Example: if you are a Credit Manager at a bank this circular applies to (All NBFCs classified as Upper Layer (NBFC-UL), Housing Finance Companies in the Upper Layer, NBFCs with net worth of ₹250 crore or more following Ind AS), your first concrete step on “RBI mandates differential standard asset provisioning for NBFC-UL” is: “Classify all standard assets into the specified categories and apply the new provisioning rates from the effective date.” (RBI issued this 06 Jun 2022).

  1. Circular: RBI/2022-23/61 -- RBI mandates differential standard asset provisioning for NBFC-UL
  2. Issued: 06 Jun 2022
  3. Action required: Classify all standard assets into the specified categories and apply the new provisioning rates from the effective date.
  4. Action required: Update provisioning policies and systems to handle the differential rates, including the teaser-rate transition from 2% to 0.40%.
  5. Action required: For Ind AS NBFCs, compute the prudential floor as per the March 2020 circular and ensure impairment allowances meet or exceed it.
  6. Action required: Review derivative exposures and set aside provisions as per counterparty asset classification.
  7. Action required: Train credit and risk teams on the new definitions for CRE, CRE-RH, and MSME categories.
  8. Owner: ____________ Target date: ____________
  9. Board/committee approval needed? Y / N
  10. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12329&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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