RBI issues new guidelines on PCR : Emkay

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RBI issues new guidelines on PCR

The RBI last week issued new guidelines on maintaining provision coverage ratio (PCR). Under new guidelines the banks are advised that

n    The PCR of 70% may be with reference to the gross NPA position in banks as on September 30, 2010;

n    The surplus of the provision under PCR vis-a-vis as required as per prudential norms should be segregated into an account styled as “countercyclical provisioning buffer”, computation of which may be undertaken as per the annexed format; and

n    This buffer will be allowed to be used by banks for making specific provisions for NPAs during periods of system wide downturn, with the prior approval of RBI.

We believe that the new guidelines with be positive for all the banks in short term as they need not provide aggressively now on fresh NPAs to keep provision cover at 70%. However, its most positive for SBI as it has now jack up provisions to 70% based on September 2010 NPAs which reduces its additional provision burden by half to Rs9.8bn only.

These are only interim guidelines and RBI will come out with final guidelines later on.