What changed
RBI issued a glide path for entities previously outside the 2016 stressed assets sale guidelines. The difference between carrying value and MD-TLE valuation of SRs held as of September 24, 2021, can now be provisioned in equal installments over five years starting FY2021-22. New SR investments must follow MD-TLE valuation rules immediately.
What it means for you
Lenders get breathing room to align SR provisioning without a sudden hit to capital. Banks must have a board-approved plan ensuring at least one-fifth of the required provisioning is made each year. This reduces earnings volatility but demands disciplined annual provisioning.
What you must do
- Calculate the provisioning shortfall on SRs held as of September 24, 2021, using MD-TLE valuation.
- Spread the shortfall equally over FY2021-22 to FY2025-26 and book at least one-fifth each year.
- Obtain board approval for a phased provisioning plan and monitor compliance annually.
- Ensure all SR investments made after September 24, 2021, are valued strictly per MD-TLE rules.
Who it affects
Primary (Urban) Co-operative Banks, State Co-operative Banks, District Central Co-operative Banks, Local Area Banks, Regional Rural Banks, All-India Financial Institutions, Non-Banking Financial Companies
Which SRs are covered under this glide path?
Only SRs outstanding on the date of issuance of MD-TLE (September 24, 2021) are eligible. SRs purchased after that date must follow MD-TLE valuation rules without any transition.
What happens if we miss the annual provisioning requirement?
The board-approved plan must ensure at least one-fifth of the total required provisioning is made each financial year. Falling short could attract supervisory action, so strict adherence is advised.