The Reserve Bank of India (RBI) on August 02, 2024, issued a notification regarding the Prudential Treatment of Bad and Doubtful Debt Reserve by Co-operative Banks.
To ensure uniformity in the treatment of Bad Debt Reserve (BDDR) for prudential purposes, revised instructions are being issued, effective FY 2024-25:
•Expense Recognition: All provisions required under Income Recognition, Asset Classification, and Provisioning (IRACP) norms, whether accounted under "BDDR" or other accounts, must be charged as expenses to the Profit and Loss (P&L) account in the period recognized. Their eligibility for regulatory capital will follow current capital adequacy guidelines.
•Net Profits Appropriation: After charging applicable provisions to the P&L account, banks may appropriate net profits to BDDR as required by statutes or other considerations.
•One-Time Measure for Transition: Identification of BDDR2024: Banks must identify BDDR balances as of March 31, 2024, created by direct appropriation from net profits.
•March 31, 2025, Adjustments: An appropriation will be made from the P&L account or General Reserves to provisions for NPA. Provisions can be netted off from Gross NPAs to calculate Net NPAs. Unrequired balances can be transferred to General Reserves or P&L Account.
•Capital Treatment: Post-adjustment, BDDR balances can be included as Tier 1 capital but not reduced from Gross NPAs to calculate Net NPAs.
•Compliance: Banks must adhere to respective State or Multi-State Co-operative Societies Acts.
•The circular is applicable immediately to all Primary (Urban) Co-operative Banks, State Co-operative Banks, and Central Co-operative Banks.
[Notification No. 27/09.18.201/2024-25]
