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New NPA Provisioning Norms – Welcome

December 2, 2009

The RBI has instructed banks to provide for 70% of non-performing assets (NPAs) by Sep 2010. More importantly, banks are allowed to include technically written-off loans to calculate the provision coverage ratio (PCR).

Technically written-off accounts are NPAs that are outstanding in the books of banks’ branches, but have been written-off, fully or partially, at the Head Office level. Including these in the gross NPA computation has helped improve banks’ PCR.

Inclusion of technically written-off accounts in the calculation of the PCR is a positive development for large-cap banks like SBI, ICICI and Canara. While SBI’s PCR stands to improve from 43% to 58%, ICICI’s and Canara’s are likely to rise to 65% (51%) and 74% (28%) respectively.

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