RBI allows banks to hike provisioning cover to 70%

Technical or prudential write-offs are the amount of non-performing loans (NPAs) in the books of the branches, but are to be written off at the head office. What’s more? the amount of technical write-offs have to be certified by statutory auditors, the RBI clarified.
In the guidelines issued by this week, RBI made it clear that banks should achieve the PCR norm not later than September-end 2010.  In effect, it allows banks to include floating provisions that were not included in Tier-II capital, in addition to provisions for NPAs while calculating the PCR.

Loan losses
Basically, the PCR is the ratio of provisions to gross-NPAs and indicates the extent of funds a lender has to keep aside to cover its loan losses.
A higher  provisioning coverage ratios without technical write-offs would have resulted in banks to provide an additional sum for bad debt.
For instance, the state run Canara Bank, which had among the lowest of PCRs at 27.8 per cent, is to set aside another Rs 1000 crore for bad debt by September 2010.
Now the Bangalore-headquartered bank can include Rs 4,700 crore of technical write offs while complying with the guidelines.

Currently, there is a realisation from a macro-prudential perspective that banks should build up provisioning and capital buffers in good times i.e. when the profits are good, which can be used for absorbing losses in a downturn.
It may be noted bankers had lobbied with the apex bank for a simpler dispensation, with the list of demands including an extension of the deadline and inclusion of technical write-offs in the PCR.

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