Some banks make record provisions against bad loans

MUMBAI: Banks have used the past one year to improve their provision coverage ratio (PCR) as they clean up their books and strengthen balance sheets amid a slowdown in fresh additions to bad loans.

PCR is at record levels for some banks, which is a positive because it makes bank numbers more reliable and increases chances of a write-back from bad assets.
PCR is the ratio of provisioning to gross non-performing assets and indicates the extent of funds a bank has kept aside to cover loan losses. A 100% PCR means that a bank has set aside 100% of doubtful loans to cover eventual losses.
“Banks have taken additional provisions during the quarter on ageing related NPAs and also in a few cases, 100% provisions on some NCLT accounts. This resulted in overall PCR going up for most banks. Higher PCR is certainly a positive outcome for banks,” said Siddharth Purohit, analyst at SMC Global Securities.
“Banks will continue to take additional provisions in FY20 as well, largely due to ageing related provisions, based on the RBI regulations.”
A fall in new additions of nonperforming assets for banks has also resulted in higher PCR.