SBI in a fix over provision coverage

State Bank of India (SBI), the country’s largest bank, is in a fix over new provision coverage ratio norm. Analysts say it will have to provide Rs 1,000-1,250 crore every quarter, irrespective of whether or not the Reserve Bank of India (RBI) extends the September deadline for achieving the 70 per cent provision coverage ratio.

RBI has given ICICI Bank six more months to meet the norm, but with a rider. The bank cannot include technical write-offs while calculating the ratio, which is the provision made for bad loans.

A quick calculation by analysts shows that SBI needs to provide Rs 2,000 crore more to take its provision coverage ratio to 70 per cent by September-end, from 59.23 per cent at present. The current ratio includes advances under collection accounts (AUCA). SBI has sought approval for treating collection accounts as technical write-offs, which RBI has allowed to be included while calculating the provision coverage ratio.

Without AUCA, SBI’s loan loss coverage is 44.36 per cent. In case RBI gives SBI six more months to adhere to the norm, the bank will have to provide Rs 5,000 crore, that is, Rs 1,250 crore every quarter. It cannot include technical write-offs.

This is the minimum SBI has to provide. The amount may go up as analysts expect slippages form restructured accounts, especially for public sector banks.

SBI, which announced its earnings on Friday, reported a net profit of Rs 1,866.60 crore, which is 32 per cent lower than in same period of the previous year. An increase in non-performing asset provisioning from Rs 1,296.25 crore to Rs 2,186.77 was one of the main reasons for the decline in profits.

RBI had asked banks to have a provision coverage ratio of 70 per cent by September 2010. Later, it allowed banks to include technical write-offs while calculating the ratio.