Provisioning Coverage Ratio - II

In Part I of the Article, the basic terms relating to NPAs and Provisioning were
explained, we can now relate these concepts for better understanding of
Provisioning Coverage Ratio

Provisioning Coverage Ratio

Simply stated, Provisioning Coverage Ratio is a percentage of Outstanding

Provisions for NPAs at the end of the accounting period (a Quarter, Half-Year,
Year etc) of its Gross Non Performing Assets. Provisioning coverage ratio
indicates the extent of funds a bank has kept aside to cover loan losses. If Gross
NPA of a Bank is Rs. 1000 Cr. And its Net NPA is Rs. 400 Cr., it implies a
Provisioning Coverage Ratio of 60% - ignoring Write Offs. (Detailed method of
calculation is covered later)

Purpose and relevance of Provisioning Coverage Ratio in addition to the

prescribed provisioning norms

Following paragraph from the RBI's Master Circular on NPAs contains the
background and rationale of Provisioning Coverage Ratio

Currently there is a realisation from a macro-prudential perspective that banks

should build up provisioning and capital buffers in good times i.e. when the profits
are good, which can be used for absorbing losses in a downturn. With this in
view, there is a need for improving the provisioning cover as the banking system
is currently making good profits. This will enhance the soundness of individual
banks, as also the stability of the financial sector. It has therefore been decided
that banks should augment their provisioning cushions consisting of specific
provisions against NPAs as well as floating provisions, and ensure that their total
provisioning coverage ratio, including floating provisions, is not less than 70 per
cent.

Further vide Circular RBI/2010-11/485 dated 21st April 2011, Reserve Bank of
India has introduced a more comprehensive methodology of countercyclical
provisioning taking into account international standards as are currently being
developed by Basel Committee on Banking Supervision (BCBS) and other
provisioning norms. Banks have been advised as under:

i) The PCR of 70 per cent may be with reference to the gross NPA
position in banks as on September 30, 2010
ii) The surplus of the provision under PCR vis-à-vis as required as per
prudential norms should be segregated into an account styled as
“countercyclical provisioning buffer”, computation of which is to be
undertaken as per format annexed with the circular
iii) This buffer may be allowed to be used banks for making specific
provisions for NPAs during period of system wide downturn, with the
prior approval of RBI
Detailed method of Calculation of the Provisioning Coverage Ratio:

Calculation of Provisioning Coverage Ratio as given in the format annexed to the

latest circular is done as under:

Provisioning Coverage Ratio =

Thus Provisioning Coverage Ratio is equal to:

Specific Provisions + Floating Provision (to the extent not used as Tier II Capital)
+ DICGC / ECGC Claims received and held pending adjustment + Part Payment
received and kept in suspense account or any other similar account
-------------------------------------------------------------------------------------------
Gross Non Performing Advances + Technical/Prudential Write Off

If the above ratio for a bank is less than 70%, then shortfall will be computed by
subtracting the numerator in the above formula from 70% of denominator. This
shortfall may have been achieved by some banks till March, 2011, if not they
need to reassess the further time required to build up the buffer and seek
approval from RBI.

Countercyclical provisioning buffer: As per the circular dated 21st April 2011,
for a Bank which had a Provisioning Coverage Ratio of 70% or more as on 30th
Sept 2010, provisions under Floating Provisions to the extent not used as Tier II
capital is to be segregated in a separate Account styled as “Countercyclical
Provision Buffer”.

For banks which had not achieved the PCR of 70% as on 30th Sept 2010, the
balance in this account on the expiry of extended period should be equal to:

Provisions under Floating Provisions to the extent not used as Tier II capital PLUS
shortfall in provisioning to achieve PCR of 70%

The balance in the Countercyclical Provisioning Buffer Account will be allowed to

be used by banks for making specific provision for NPAs during period of system
wide downturn, with the prior approval of RBI.

Technical/Prudential Write Off

Technical or prudential write-off is the amount of non-performing loans which are

outstanding in the books of the branches, but have been written-off (fully or
partially) at Head Office level. Amount of Technical write-off should be certified by
statutory auditors.

Annexure to this Article contains data on Provisioning Coverage Ratio of all banks
as on 31st March 2009 and 31st March 2010 [IGNORING TECHNICAL/PRUDENTIAL
WRITE-OFFs]

Annexure
 Information on Gross NPA and Net NPA of various banks was taken from RBI site. Gross NPAs
and Net NPAs levels were also ascertained. Then in the tables below, the figure of Provisions for
specific provisions has been calculated by subtracting Net NPA from Gross NPA as at the end
of both the years. Provisioning Coverage Ratios for all banks were then calculated by dividing
Provisions by amount of Gross NPA of the concerned bank

PROVISIONING COVERAGE RATIO: PUBLIC SECTOR BANKS: IGNORING TECHNICAL WRITE OFFS –
RBI DATA ON GROSS NPA AND NET NPA HAS BEEN USED TO ARRIVE AT THE PCR CALCULATIONS

Rs. Crore Rs. Crore Rs. Crore Rs. Rs. Rs. Crore
Crore Crore
2009- 2010- 2010-
State Bank of India & 2009-Net
Gross Provisions PCR Gross Net Provisions PCR
its Associates NPA
NPA NPA NPA
State Bank of India 1571400 967742 603658 38.42% 1953489 1087017 866472 44.36%
State Bank of Bikaner
49033 25294 23739 48.41% 61185 27125 34060 55.67%
and Jaipur
State Bank of
45338 16579 28759 63.43% 64898 28893 36005 55.48%
Hyderabad
State Bank of Indore 28869 19274 9595 33.24% 49289 26813 22476 45.60%
State Bank of Mysore 36761 12907 23854 64.89% 59526 29979 29547 49.64%
State Bank of Patiala 57390 26363 31027 54.06% 100661 48272 52389 52.04%
State Bank of
52600 18754 33846 64.35% 64198 35040 29158 45.42%
Travancore
Nationalised Banks
Allahabad Bank 107825 42211 65614 60.85% 122180 47015 75165 61.52%
Andhra Bank 36814 7922 28892 78.48% 48787 9572 39215 80.38%
Bank of Baroda 184292 44904 139388 75.63% 240069 60232 179837 74.91%
Bank of India 247088 62821 184267 74.58% 488265 220745 267520 54.79%
Bank of Maharashtra 79841 27190 52651 65.94% 120979 66243 54736 45.24%
Canara Bank 216797 150725 66072 30.48% 259031 179970 79061 30.52%
Central Bank of India 231600 106300 125300 54.10% 245800 72700 173100 70.42%
Corporation Bank 55922 13830 42092 75.27% 65094 19725 45369 69.70%
Dena Bank 62077 31338 30739 49.52% 64199 42753 21446 33.41%
Indian Bank 45918 9381 36537 79.57% 51010 14493 36517 71.59%
Indian Overseas
192341 99914 92427 48.05% 361108 199497 161611 44.75%
Bank
Oriental Bank of
105812 44243 61569 58.19% 146875 72382 74493 50.72%
Commerce
Punjab and Sind
16104 7803 8301 51.55% 20615 11663 8952 43.42%
Bank
Punjab National
250690 26386 224304 89.47% 321441 98169 223272 69.46%
Bank
Syndicate Bank 159454 63177 96277 60.38% 200682 96320 104362 52.00%
UCO Bank 153951 81267 72684 47.21% 166643 96628 70015 42.01%
Union Bank of India 192335 32594 159741 83.05% 267089 96533 170556 63.86%
United Bank of India 102000 52500 49500 48.53% 137200 77900 59300 43.22%
Vijaya Bank 69882 29229 40653 58.17% 99445 58183 41262 41.49%
Other Public Sector Bank
IDBI Bank Ltd. 143569 94896 48673 33.90% 212938 140632 72306 33.96%
 PROVISIONING COVERAGE RATIO: PRIVATE SECTOR BANKS: IGNORING TECHNICAL WRITE OFFS
– RBI DATA ON GROSS NPA AND NET NPA HAS BEEN USED TO ARRIVE AT THE PCR CALCULATIONS

Rs. Rs.
Rs. Crore Rs. Crore Rs. Crore Rs. Crore
Crore Crore
2009- 2010- 2010-
2009-Net
PVT SECTOR BANKS Gross Provisions PCR Gross Net Provisions PCR
NPA
NPA NPA NPA
Bank of Rajasthan 16092 5703 10389 64.56% 29381 13350 16031 54.56%
Catholic Syrian Bank 17178 8794 8384 48.81% 14929 7052 7877 52.76%
City Union Bank 10208 6111 4097 40.14% 9350 3967 5383 57.57%
Dhanlaxmi Bank 6443 2824 3619 56.17% 7750 4194 3556 45.88%
Federal Bank 58954 6812 52142 88.45% 82097 12879 69218 84.31%
ING Vysya Bank 20939 20041 898 4.29% 23451 22183 1268 5.41%
Jammu & Kashmir
55927 28751 27176 48.59% 46231 6433 39798 86.09%
Bank
Karnataka Bank 44320 11610 32710 73.80% 54964 18861 36103 65.68%
Karur Vysya Bank 20586 2582 18004 87.46% 23534 3095 20439 86.85%
Lakshmi Vilas Bank 14405 6485 7920 54.98% 32517 25778 6739 20.72%
Nainital Bank 1873 0 1873 100.00% 2342 0 2342 100.00%
Ratnakar Bank 1727 545 1182 68.44% 2764 1136 1628 58.90%
SBI Comm. & Intl. Bank 461 23 438 95.01% 327 39 288 88.07%
South Indian Bank 26056 13431 12625 48.45% 21100 6157 14943 70.82%
Tamilnad Mercantile
12040 2208 9832 81.66% 11500 1998 9502 82.63%
Bank

Axis Bank 89777 32713 57064 63.56% 131800 41900 89900 68.21%
Development Credit
29000 12701 16299 56.20% 31918 10762 21156 66.28%
Bank
HDFC Bank 195152 62762 132390 67.84% 181676 39205 142471 78.42%
ICICI Bank 964931 455394 509537 52.81% 948065 384111 563954 59.48%
IndusInd Bank 25502 17913 7589 29.76% 25547 10183 15364 60.14%
Kotak Mahindra Bank 68921 39684 29237 42.42% 76734 36025 40709 53.05%
Yes Bank 8493 4116 4377 51.54% 6020 1299 4721 78.43%