RBI/2009-10/241
DBOD.No.BP.BC. 64 /21.04.048/2009-10
December 1, 2009
The Chairman and Managing Director / Chief Executive Officer
All Scheduled Commercial Banks
(Excluding RRBs)
Dear Sir,
Second Quarter Review of Monetary Policy for the
Year 2009-10 –Provisioning Coverage for Advances
Please refer to paragraph 159 of the Second Quarter Review of the Monetary
Policy for the year 2009-10 issued on October 27, 2009 (copy of the paragraph
enclosed).
- At present, the provisioning requirements for NPAs range between 10 per cent
and 100 per cent of the outstanding amount, depending on the age of the NPAs and
the security available. Banks can also make additional specific provisions
subject to a consistent policy based on riskiness of their credit portfolios,
because the rates of provisioning stipulated for NPAs are the regulatory
minimum. It has been observed that there is a wide heterogeneity and variance in
the level of provisioning coverage ratio across different banks.
- As you are aware 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.
- Provisioning Coverage Ratio (PCR) is essentially the ratio of provisioning to
gross non-performing assets and indicates the extent of funds a bank has kept
aside to cover loan losses. Banks are advised to compute the PCR as per the
annexed format.
- Banks should achieve this norm not later than end-September 2010. Also, the
PCR should be disclosed in the Notes to Accounts to the Balance Sheet.
Yours faithfully
(B. Mahapatra)
Chief General Manager
Paragraph 159 of the Second Quarter Review
of the Monetary Policy for the year 2009-10
At present, the provisioning requirements for NPAs range between 10 per cent and
100 per cent of the outstanding amount, depending on the age of the NPAs, the
security available and the internal policy of the bank. Since the rates of
provisioning stipulated by the Reserve Bank for NPAs are the minimum and banks
can make additional provisions subject to a consistent policy based on riskiness
of their credit portfolios, it has been observed that there is a wide
heterogeneity and variance in the level of provisioning coverage ratio across
different banks. With a view to improving the provisioning cover and enhancing
the soundness of individual banks, it is proposed to advise banks to 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. Banks should
achieve this norm not later than end-September 2010.
Annex