The Reserve Bank of India’s decision to include technical write-offs for the calculation of provision coverage ratio (PCR) has come as a boon for banks.
PCR is the ratio of provisions to gross non-performing assets and indicates the extent of funds a lender keeps aside to cover loan losses. Technical or prudential write-offs are the amount of non-performing loans in the books of the branches, but yet to be written off at the head office.
RBI said the amount of technical write-offs would have to be certified by statutory auditors.
| WHERE THEY STAND Provision coverage ratio | |||
| PCR* | Gross NPA* | Write-off# | |
| Axis Bank | 63.40 | 1173.50 | 366.00 |
| Bank of India | 62.00 | 4186.64 | 485.80 |
| Bank of Maharashtra | 49.50 | 1216.82 | 168.79 |
| Canara Bank | 28.00 | 2618.86 | 615.31 |
| Corporation Bank | 65.70 | 752.34 | 205.38 |
| Dena Bank | 49.50 | 585.52 | 247.41 |
| IOB | 53.32 | 3218.27 | 183.40 |
| ICICI Bank | 51.20 | 8925.55 | 2409.44 |
| IDBI Bank | 32.97 | 2317.47 | 193.37 |
| IndusInd Bank | 50.00 | 257.59 | 163.36 |
| ING Vysya Bank | 31.50 | 475.06 | 106.34 |
| Kotak Mahindra Bank | 40.00 | 928.24 | 133.02 |
| Oriental Bank | 54.70 | 1288.04 | 126.02 |
| State Bank of India | 39.50 | 18861.17 | 3654.39 |
| State Bank of Mysore | 64.89 | 535.44 | 85.15 |
| UCO Bank | 56.00 | 1493.23 | 103.26 |
| * Provision coverage ratio and gross NPA as on December 31, 2009 # As on March 31, 2009; Figures in Rs crore Source: Capitaline | |||
Based on the rule itself, 17 public sector banks would have needed to set aside another Rs 12,105 crore between January and September this year to meet the mandated 70 per cent PCR. But, by merely adding the technical write-offs till the end of March 2009, the latest period for which data is available, the requirement would fall by Rs 9,630 crore, and the deficit would be to the tune of Rs 2,475 crore.
Given the healthy trailing 12-month profit of Rs 29,360 crore, banks have a healthy cushion to fulfill the 70 per cent PCR prescribed by RBI.
Banks such as State Bank of India, which needed close to Rs 5,000 crore of additional provisions when the norms were announced in October, and ICICI Bank which had a shortfall of Rs 1,700 crore, have sought clarity on technical write-offs. As things stand, ICICI Bank’s ratio was estimated at 62 per cent, including technical write-offs. But, minus the write-offs, it was 52 per cent.
Similarly, Canara Bank said it had crossed the 70 per cent level due to RBI’s decision to include write-offs in the calculation. In the absence of it, the ratio was less than 30 per cent at the end of December.
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However, SBI would still need to set aside around Rs 1,000 crore a quarter, since its PCR fell to 56.19 per cent at the end of December from 59.14 per cent in September.
RBI hasn’t clarified on how many years of write-offs can be taken into account for computing the NPA coverage ratio. “If we are expected to take into account only write-offs made in 2009-10 for meeting the 70 per cent norm by September 2010, omitting the write-offs made in previous financial years, it is going to be a tough task,” said a senior bank official.