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Provision coverage for stressed assets
Nov 18, 2013

Indian banks have witnessed a significant jump in bad loans over the last few years. The profitability of the banking sector, particularly public sector banks, has been adversely impacted. This has resulted in lower provision coverage ratio (PCR).

First, let's try and understand what PCR means. PCR is a measure that indicates the extent to which the bank has provided against the potentially non recoverable loans (NPAs). A high ratio suggests that additional provisions to be made by the bank in the coming years would be relatively low (if gross non-performing assets do not rise at a faster clip). The RBI wants banks to increase provisions for bad loans. Internationally, provisioning is 70-80% which is far higher than 30-40% in India. The RBI is also planning to frame new rules that would incentivize banks that were proactive in early detection and resolution of NPAs.

Source: RBI

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