SBI may get one-year extension to meet 70% PCR norms

The State Bank of India (SBI) is likely to get a one-year extension to meet the mandatory 70 per cent loan-loss coverage norms 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 raise its loan-loss coverage which is more popularly known as the provision coverage ratio (PCR) to 70 per cent, but the RBI was not in favour of a two-year extension to the country's largest lender, which took a big hit on its fourth quarter numbers owing to high provisions.

The official added that the regulator is understood to be willing to give time till September 2011 only.

"We had asked for an extension till 2012. But the indication is that they (RBI) would give us time till September 2011, which should be fine for us," the official, who did not want to be named, told PTI here.

As per the RBI stipulation, all commercial banks have to augment their PCR to 70 per cent by this September. This would mean that banks have to make huge provisions on their bad loans to meet this norms. 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 provisioning 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.
      
The State Bank had seen a 32 per cent fall in its profit in Q4 of FY10 to Rs 1,867 crore even when it raised provisioning only marginally from 56.19 per cent to 59.23 per cent of its total NPA on q-o-q basis. Its nearest competitor ICICI Bank has already got six months relaxation (till March 31, 2011) to meet the new norms. As of March 2010, the PCR of ICICI stood at 59.5 per cent.
      
"The RBI had allowed us time till next March to reach a PCR of 70 per cent. And we should be able to achieve it in the normal course and we are on track having now got the two additional quarters," an ICICI Bank official had said.
     
However, another state-run lender Bank of India said it may not have any difficulty to meet the required level as it needs to provide only an additional Rs 300 crore to augment its PCR, which is 66 per cent as of now.
     
At present, the PCR varies between 10 and 100 per cent in the banking sector. According to industry sources, a few more banks, whose coverage ratios are low, may also seek more time to meet the stipulated level.
    
Earlier, RBI deputy governor Shyamala Gopinath had said some banks might take longer than others to meet the new norms due to their varying levels of provisioning coverage and so RBI would look at these issues. "Various banks have different levels of provisioning coverage and in certain cases it might take them a little longer. We are looking at a few cases of these type," she had said.