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The Reserve Bank of India (RBI) is likely to ask banks to classify floating provisions as net demand and time liability (NDTL) - a move that is expected to hurt HDFC Bank and IndusInd bank.
HDFC Bank has floating provisions of Rs 1800 crore while IndusInd Bank has recently created floating provisions of Rs 50.
Floating provisions are provisions made in excess of what banks are required to make. However, banks can dip into floating provision only after taking approval from RBI.Currently, very few banks have floating provisions on their books.
Sources from the banking circle said that RBI is likely to ask banks to treat floating provisions as a part of net demand and time liability - on which banks are mandated to maintain cash reserve ratio and statutory liquidity ratio.
As of now banks have to park 4% of the NDTL with RBI as CRR and invest 23% of their deposits in government securities known as SLR. If floating provisions are added to banks deposits, they will have to park more money with RBI in form of CRR where they do not earn any interest. (Economic Times)
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