State Bank of India (SBI), which is struggling to meet the regulatory mandate of 70 per cent provision coverage ratio (PCR) by September, has sought a one-year extension to comply with the norm.
According to sources close to the development, the country’s largest bank has written to the Reserve Bank of India (RBI) seeking an extension of the deadline till September 2011 to meet the new stipulation. They, however, added RBI was yet to take a call on the issue. Recently, the regulator has provided six months extension, till March 31, to ICICI Bank for achieving the PCR norm.
According to State Bank’s internal estimates, it will have to make additional provision of Rs 2,800 crore for non-performing assets to reach a PCR of 70 per cent. At March-end, its PCR was 59.46 per cent, including advances under collection accounts (AUCA). Without AUCA, SBI’s loan-loss coverage is 44.36 per cent, and is seen as a pressure point by analysts tracking the sector.
In September 2009, RBI came out with a regulation mandating that banks maintain PCR at 70 per cent. They were given one year to meet the norm which was seen as creating a buffer during good times to tide over possible problems during times of stress. Later, RBI allowed banks to include technical write-offs while calculating PCR. However, when it gave a one-year extension to ICICI Bank, the bank was not allowed to include technical write-offs.
Though most banks have met the PCR mandate, some like SBI, ICICI and Bank of India are yet to achieve it.
SBI’s request for the extension comes after the bank reported a 32 per cent decline in net profit for the quarter ended March 31, which was the first quarterly fall in three years. The fall in the bottom line is mainly due to an increase in provision for non-performing assets to Rs 2,186.77 crore from Rs 1,296.25 crore and an increase of 41 per cent in operating costs.
The bank has already started to curb expenses, as it wants to cap the growth of operating expenses at 5 per cent in 2010-11, mainly by opening lesser branches and automated teller machines.