Reserve Bank of India loosens bad debt provision

Regulator gave in to bankers' appeal for easier dispensation that reduces pressure on banks.

The Reserve Bank of India (RBI) has allowed the lenders to include technical write-offs while increasing the provision coverage ratio (PCR) to 70 percent.

In the issued guidelines, the regulator allowed banks to include floating provisions that were not included in Tier-II capital, in addition to provisions for non-performing assets (NPAs), while calculating the PCR.

Bankers had lobbied with the regulator for a simpler dispensation, with the list of demands including an extension of the deadline and inclusion of technical write-offs in the PCR as reported in Business Standard.

A higher PCR without technical write-offs would have resulted in State Bank of India (SBI) providing another Rs 5,000 crore ($1.08 billion) for bad debt by September 2010, while ICICI Bank was required to set aside around Rs 1,700 crore ($367.8 million) over four quarters. Canara Bank, which had among the lowest of PCRs (27.8 percent), was required to provide another Rs 1,000 crore ($216.36 million). Now, the public sector bank can include the Rs 4,700 crore ($101.68 million) of technical write-offs while complying with the guidelines.

Senior public sector bank officials said the permission to include write-offs while computing the coverage ratio would reduce pressure on banks. But RBI is silent on how many years of write-offs can be taken into account for computing the NPA coverage ratio.