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New RBI directive on provisioning

Banks must make higher provisions against cases that are referred for bankruptcy proceedings, according to directive of the Reserve Bank of India. The central bank has told banks to set aside 50% of the loan amount as likely losses for all cases referred to the National Company Law Tribunal, which is the arbitration authority under the Insolvency and Bankruptcy Code (IBC). RBI as also told banks that provisioning should be 100% in those cases that fail to get resolved under the insolvency proceedings and instead are forced into liquidation. The banks are allowed to spread the provisions across four quarters from June 2017. RBI had advised banks that accounts with outstanding amounts of more than Rs 5,000 crore, of which at least 60% were classified as non-performing by banks as of 31 March 2016, can be referred for bankruptcy.

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