According to a private sector banker, RBI's previous move of hiking the provisioning norm from 0.25% to 0.4% did not generate much of an impact on both the pricing and demand for loans.
Nicholas Winsor, head-personal financial services of HSBC, said: "Through this hike, the RBI has attempted to ensure that the growth in banks' loan books is prudent and that banks provide for potential credit losses. Also, it is a move that aims at protecting banks from over-exposure to these sectors, especially in case of an economic downturn."
In its mid-term review of October 2005, RBI had increased the provisioning requirement on all standard assets, with the exception of direct advances to agricultural and SME sectors, from 0.25% to 0.40% of the funded outstanding on portfolio basis.