The Reserve bank of India has extended the deadline for banks to meet the provisioning requirements for bad loans. The deadline has been extended by six months.
According to a senior RBI official this would help the banks mitigate the adverse impact on the balance sheets over a longer period.
In its quarterly policy review in October, RBI had asked banks to increase the provisioning requirements to 70 percent of the total deposits and had asked them to meet the deadline by September 2010. However, banks had requested the regulator to increase the deadline.
"We requested an extension for the time frame to meet the provisioning norms. We hope that RBI will take into account our presentation while taking a call on this," said MV Nair, chairman of Indian Banks Association.
RBI computes the funds that banks keep aside to compensate for losses arising out of bad debts through a measure called Provision Coverage Ratio (PCR). A high PCR indicates a good financial health.
The Indian banking system has a PCR slightly above 50 percent and would need to keep aside nearly Rs. 21000 crore to raise it up to 70 percent.