BoM may miss NPA coverage deadline

Bank of Maharashtra (BoM) may miss its September 2010 deadline to comply with the Reserve Bank of India’s (RBI’s) prescription to make provisions for bad loans.

As per the norms, RBI requires banks to provide for 70 per cent of its gross non-performing assets (NPAs). For BoM, the provision coverage ratio (PCR) was 54.70 per cent at the end of June 2010. The bank has been making aggressive recoveries, even as it writes off loans, where full provisions have been made for NPAs. Yet, it would find it difficult to reach 70 per cent PCR by September, said Executive Director M G Sanghvi.

Asked if BoM would approach RBI for an extension to meet the norm, Sanghvi said it was still working on the proposal to the central bank.

The State Bank of India (SBI) has received a one-year extension, while ICICI Bank has a six-month extension to achieve the 70 per cent provision coverage.

The Pune-based lender had adopted a two-pronged strategy to reduce delinquencies. First, by expanding credit to reduce bad loans in terms of percentage. Second, by stepping up recoveries. It has taken away the discretionary power vested with branch managers in recognising an account as an NPA. Now, the branch managers have to take legal action in case of a default.

Sanghvi said the bank made more provisions than was needed in the first quarter (April-June 2010) and it would also have to aggressively make provisions in the second quarter of the current financial year.

“It does not make sense to show high profits. There will be profits but not by compromising on this (provision),” he added. The technical write-off in the second quarter could be Rs 75-100 crore.