State Bank of India is likely to get a one-year extension to meet the mandatory 70 per cent Provision Coverage Ratio (PCR) after it sought additional time from the Reserve Bank to fulfil the requirement.
According to a senior SBI official, the bank initially sought time till March 2012 to increase its loan loss coverage to 70 per cent but the RBI was not in favour of a two-year extension. However, the regulator is understood to be willing to allow time till September 2011 to SBI, which took a hit on its fourth quarter numbers owing to high provisions.
As per the RBI stipulation, all commercial banks have to augment their provision coverage ratio to 70 per cent by September 2010. This would mean that banks have to make huge provisions on their bad loans to meet this level. For SBI, whose PCR is just above 59 per cent, has to provide an additional Rs 2,800-crore to meet the stipulated level.
The Reserve Bank decided to hike the provision level with a view to enhance the asset quality in the banking system as additional provisioning would give more cushion to banks given a steep rise in bad loan levels in the aftermath of the financial downturn.
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