RBI advised State-run Infrastructure Finance Companies to make Provisions for Standard Assets

The Reserve Bank of India in May 2011 advised state-run infrastructure finance companies to make provisions for standard assets from March 2012 fearing an increase in defaults amid uncertainty over pending infrastructure and power projects.

RBI's current guidelines exempt public sector financial companies from making provisions for standard assets and the current rule will be applicable till March 2012. Rural Electric Corporation, Power Finance Corporation and India Infrastructure Finance Company are some of the companies who come under this exemption.

For banks and non-banking finance companies, standard asset provisioning is currently at 0.25% of the total credit. Standard assets are loans that do not have any problem about repayment and are less risky.

The central bank wants infrastructure finance companies to provide a future roadmap once the new norm on standard assets provisioning is introduced.

RBI is presently eager to tighten norms for non-banking finance companies and wants to regulate them at par with banks. Bad loans of Indian banks have risen in the past one year. The government has also sounded a word of caution on the rising bad loans of public sector banks. Gross non-performing assets of the largest lender, SBI rose to 3.8% at the end of 2010-11 from 1.72% 2009-10.

The central bank has introduced stringent prudential norms for Non-banking Financial Companies (NBFCs), including standard asset provisioning, removal of priority sector status and increase in capital adequacy ratio.