What does provision coverage ratio mean?
A provision is money a bank sets aside from its profit for loans it may not get back. The provision coverage ratio, or PCR, compares those provisions with the bank's bad loans.
It is provisions held against bad loans, divided by gross NPAs, times 100.
Why do banks have to make provisions?
RBI sets minimum provisions that grow as a bad loan ages. A substandard asset needs a general provision of 15% of the amount outstanding.[S1]
On the secured part of a doubtful asset, it rises from 25% in year one to 100% after three years. Loss assets should be written off, or fully provided for if they stay on the books.[S1]
How does PCR connect to net NPA?
Provisions held against bad loans are subtracted from gross NPAs to arrive at net NPAs.[S1]
So the same gross NPA can mean a small or a large net NPA. The gross and net NPA entry shows how the two are worked out.
Why can PCR differ in meaning between banks?
Banks may hold more than the minimum, for example floating provisions. RBI lets floating provisions be netted off gross NPAs until they are used.[S1]
Each bank says which provisions its PCR includes, so the basis can differ. Cityfort shows the ratio as the bank reports it.
Where do you see it on Cityfort?
Each bank's stock page shows the provision coverage ratio in "Financial strength", next to gross and net NPA.