What changed
RBI issued new guidelines (Annex-1) for regulated entities participating in state government debt relief schemes, effective from December 31, 2024. It mandates board-approved policies for participation, clear determination of crystallised dues including accumulated interest, and 100% provisioning for government dues pending beyond 90 days for pre-guideline schemes.
What it means for you
Banks must now exercise greater caution and due diligence before joining state DRS, ensuring fiscal support is adequate and timely. The 100% provisioning rule for delayed government payments will pressure banks to actively recover dues, potentially reducing moral hazard and improving credit discipline. Lenders may face higher provisioning costs if governments delay payments.
What you must do
- Update board-approved policy for participating in government debt relief schemes, covering risk assessment and prudential norms.
- Ensure clear calculation of crystallised outstanding including accumulated interest for borrowers under DRS before settlement.
- Actively follow up with state governments for pending dues under pre-guideline schemes and make 100% provision if overdue beyond 90 days.
- Engage with SLBC/DCC during DRS design phase to flag any provisions harming long-term borrower interest or prudential norms.
Who it affects
All commercial banks including RRBs and LABs, All primary urban co-operative banks, All state and central co-operative banks, All NBFCs including HFCs, All-India financial institutions
What happens if a state government delays payment under a DRS notified before these guidelines?
For pre-guideline DRS, any dues pending from the government for more than 90 days must be fully provisioned at 100%. Banks should actively follow up for early settlement.
Can banks choose not to participate in a state government DRS?
Yes, participation is voluntary and must be based on a board-approved policy. Banks can decline if the scheme's terms conflict with prudential norms or long-term borrower interests.
What should banks do if a DRS requires them to extend fresh credit?
Banks must assess the prudential concerns, including mandatory fresh credit requirements, and ensure compliance with extant resolution frameworks. Any issues should be raised through SLBC/DCC during consultation.