According to Mr. Anand Sinha, Executive Director, Reserve Bank of India is working on a comprehensive policy that will allow banks to bring down the provision coverage ratio during downturn. However, this will have to be done in a phased manner.
The RBI had asked banks, in October 2009, to maintain a provision coverage ratio of 70 per cent as part of the build-up phase.
Banks were given time till September 2010 to meet the provision coverage ratio. Some of the banks, such as SBI, ICICI Bank, UCO Bank and Bank of Maharashtra, had asked the RBI for more time to meet the target.
Mr Sinha said the idea is to build up capital buffers in good times so that banks can draw on them during bad times.
He said the RBI has been using counter cyclical capital requirements for banks' exposure to sectors such as capital markets and real- estate. Similarly, the RBI had asked to maintain the provision coverage ratio of 70 per cent as part of the counter cyclical provisioning, he said.
Mr Sinha said the provision coverage of 70 per cent was something the Reserve Bank of India did on an immediate basis as banks' profitability was good.
Mr O.P. Bhatt, Chairman, SBI, said that it is good to have a dynamic view on provisioning. This is how it is in advanced countries. Each country's approach will be different, he said.
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