RBI Mandates Uniform NPA Provisions for Co-Operative Banks

On 2nd August, 2024, the Reserve Bank of India issued new norms to standardize the treatment of provisions for non-performing assets (NPAs) across co-operative banks, effective immediately.

The revised norms apply to Urban Co-operative Banks, State Cooperative Banks, and Central Co-operative Banks.
Beginning from FY25, provisions for NPAs must be charged as an expense to the Profit & Loss (P&L) account in the period they are recognized.
Existing regulatory capital norms for capital adequacy will continue to apply, even as accounting practices shift.
Banks are required to identify and quantify the balances in the Bad and Doubtful Debt Reserve (BDDR) as of March 31, 2024, which were previously created by appropriating net profit rather than as an expense.
By March 31, 2025, these provisions should be made directly from the P&L Account or General Reserves, with adjustments for net non-performing assets (NNPAs) permissible.
Balances in the BDDR that are deemed excess can be transferred to General Reserves or the P&L Account.
Following these adjustments, BDDR balances can be included in Tier 1 capital but should not be deducted from Gross NPAs when calculating Net NPAs.