New NPA rule for co-ops from March

In yet another attempt to bring the co-operative banks on par with commercial banks, the Reserve Bank of India (RBI) has directed co-operative banks to adopt the 90-day accounting norm by March 2005.

In accordance with the norm, cooperative banks will have to classify an asset as non-performing if interest or installment of principal remain overdue for a period of more than 90 days without any exception.

Earlier, the RBI had relaxed the 90-day norm for the cooperative banks in case of gold loans and small loans up to Rs 1 lakh.

"With a view to strengthening the financial health of the urban co-operative banks (UCBs) and achieving regulatory convergence of the prudential norms applicable to various players in the financial sector, it has been decided that the 90-days loan impairment norm will also be applicable to gold loans and small loans upto Rs 1 lakh with effect from the year ending March 31, 2005," said an RBI notification.

This will bring the cooperative banks on par with commercial banks. With effect from March 31, 2004, commercial banks are required to shift to 90-day provisioning norm from the prevailing 180-day norm.

Smaller co-operative banks are likely to feel the heat of the directive as banks would now have only three months against six month to follow up and recover bad loans, said a senior official from Shamrao Vithal Co-operative Bank. The impact will also depend on the composition of a banks portfolio, he added.