Thanks to RBI, which had withdrawn the requirement for 70% loan loss cover from September 2011. Else, Public sector banks, which have decreased their PCR (Provision Coverage Ratio) in the last one year, would have seen their quarterly profits wiped out, were they asked to maintain PCR of 70%.
- It is interesting to note that although, RBI had withdrawn the requirement for 70% loan loss cover from September 2011, private sector banks, whose asset quality is better than their public sector counterparts’, have maintained provision covers of more than 70%.
- Except a few exceptions, majority of PSBs (Public Sector Banks) have reported a sequential decrease in their PCR, while private sector banks have performed better.
Source: Business Standard
Clearly from the table, we can see that SBI’s quarterly Net Profit was 3,658.14 Crores and its PCR was 62.80% and in case it was to maintain PCR of 70%, SBI would have almost wiped out its quarterly profit.
Now, if we analyze the case of Indian Overseas Bank, it has a quarterly net profit of Rs 158.43 Crores. Were it asked to maintain PCR of 70%, then Indian Overseas Bank would have needed 680 Crores i.e. 4.3 times more than its net profit.
The country’s top private sector banks ICICI Bank and HDFC Bank had a PCR of 78.7% and 82%, respectively, at the end of the September quarter.
What is Provision Coverage Ratio (PCR) ?