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SBI to increase loan loss cover by 250 bps every quarter

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State Bank of India (SBI) has chalked out a plan to reach the Reserve Bank of India (RBI)-mandated 70 per cent (PCR) three months before the September 30 deadline.

The country’s largest lender aims to increase provisioning cover by 250 basis points each quarter so that it can reach the 70 per cent mark by the end of the first quarter of the next financial year. At the end of the second quarter of this financial year, SBI’s PCR was 62.78 per cent, including technical write-offs.

According to estimates, will need to provide around Rs 2,000 crore more, which means it will provide around Rs 600 crore each quarter till it reaches the 70 per cent mark.

“By increasing the loan loss cover by 2.5 percentage points every quarter, we aim to reach the 70 per cent PCR mark by the end of June. We have kept one more quarter in hand in case of any shortfall,” said a senior SBI official.

In October 2009, the central bank asked banks to have 70 per cent PCR by September 2010. However, some banks, like SBI and ICICI Bank, requested for some more time. While ICICI Bank got three months extension, SBI was given one more year.

According to broking firm Motilal Oswal, SBI’s asset quality is likely to remain stable in the third quarter, but the bank is expected to make more provisions to reach the 70 per cent PCR mark.

“Out PCR, including technical write-offs, was 62.8 per cent and the shortfall of Rs 2,300 crore to reach the 70 per cent mark will be spread over the next four quarters. Additionally, the bank will be required to provide for increase in standard asset provisioning on dual rate to two per cent as against 0.4 per cent at present,” the brokerage said.

In October this year, RBI asked banks to increase the standard asset provisioning for teaser rate schemes to two per cent. SBI, the pioneer of such schemes, may have to provide Rs 400 crore more for loans it has disbursed under its dual rate scheme.

Some brokerages expects that higher provisioning may result in flat growth in net profit in the third quarter.

“We expect SBI’s profits to be flat YoY as healthy growth in core income is offset by higher loan loss provisioning,” brokerage firm CLSA said. SBI is scheduled to announce its earnings for the October-December quarter on Saturday.

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