Banks plan to move RBI for lower Stage-II floor

Commercial banks are planning to request the Reserve Bank of India (RBI) to lower the provisioning requirement for Stage-II loans as proposed in the draft Expected Credit Loss (ECL) framework for loan-loss provisioning released last month.

- MANOJIT SAHA

For Stage-II loans, most of which fall under the Special Mention Accounts 1 or 2, (SMA1/SMA2) in the current incurred-loss regime, the RBI has set a floor, or minimum requirement, of 5 per cent (of loan exposure) provision in the ECL regime. Banks generally make 0.4 per cent provisions for such loans now.

According to a senior banker from a large public-sector bank, the provisioning burden would increase significantly if the proposed 5 per cent floor is implemented.