HIGHER PROVISIONS MAY PUT PRESSURE ON BANK PROFITS

As per a report appearing in The Economic Times, Rating Agency Standard & Poor has said that bank's profits would decline in F.Y. 2010 and 2011 on complying with the higher provision levels stipulated by RBI in its recent credit policy. In the recent policy, RBI asked banks to maintain a Provision Coverage Ratio (PCR) of atleast 70% by September 2010. This is against industry average PCR of 52%. The ratio is an indicator of the amount that banks expect to forego from a bad loan if they have to write-off that loan account.
As per the report, Banks have been urging RBI to extend the deadline by one more year till September 2011. It is also reported that Banks have also asked RBI if they could include written-off Accounts while calculating PCR.
The report says that SBI has a PCR of 38.7%, ICICI Bank has 55%, HDFC Bank 68%, Bank of Baroda 75% and Punjab National Bank 90% as on 31.03.2009.
Source: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance-/banking/Higher-provisions-may-put-pressure-on-bank-profits/articleshow/5201524.cms
YOU MAY BE AWARE THAT CENTRAL BANK OF INDIA HAS ALREADY ACHIEVED PCR OF 74.3% AS ON 30TH SEPTEMBER 2009 I..E. ONE YEAR AHEAD OF THE DEADLINE. PLEASE REFER QUARTERLY RESULTS OF THE BANK PUBLISHED HERE IN EARLIER POSTS.