Press Information Bureau

Government of India

Ministry of Finance

29-November-2012 14:37 IST

After the Second Quarter Review of Monetary Policy 2011-12 by the Reserve Bank of India (RBI), a Working Group (WG) was constituted under the Chairmanship of Shri B. Mahapatra, Executive Director, RBI to review the existing prudential guidelines on restructuring of advances by banks/financial institutions and suggest revisions taking into account the best international practices and accounting standards.

The Working Group had representation from a few select banks. Further, the report of the Working Group was placed on the website of the Reserve Bank for comments of all stakeholders including banks.

Given the larger objectives of financial stability, and keeping in view international best practices to ensure that banks have sufficient provisioning buffer, RBI has announced, in its second review of Monetary Policy, to raise the provision for restructured standard accounts from the existing 2 per cent to 2.75 per cent.

To address the issue of rise in NPAs and restructured advances of banks, and with a view to improving effective information sharing among banks on credit, derivatives and unhedged foreign currency exposures, banks are advised to put in place, by end-December 2012, an effective mechanism for information sharing. Any sanction of fresh loans/ad-hoc loans/renewal of loans to new or existing borrowers with effect from January 1, 2013 should be made only after obtaining/sharing necessary information. Banks have been advised that non adherence to these instructions would be viewed seriously by RBI and banks would be liable to action including imposition of penalty wherever considered appropriate.

The compliance to the above regulatory and supervisory measures are aimed at reducing growth in NPAs and restructured advances by banks are being closely monitored by the RBI on an ongoing basis.

This was stated by the Minister of State for Finance, Shri Namo Narain Meena in a written reply to a question in the Rajya Sabha today.

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DSM/RS/ka

Information sharing requirement for banks: loan sanctions must follow shared borrower credit and exposure data to strengthen monitoring. A regulatory directive requires banks to implement an effective information sharing mechanism for borrower credit, derivative exposures and unhedged foreign currency positions; fresh, ad hoc and renewed loans are to be made only after obtaining and sharing necessary information, with supervisory action and penalties for non compliance. The requirement accompanies an increase in provisioning for restructured standard accounts and ongoing monitoring to restrain growth in NPAs and restructured advances.