SBI may raise bad loans provision after RBI directive
20 Jul 2009
Following a Reserve Bank of India directive to set aside more money for bad loans, the State Bank of India today said its provisions in this respect are adequate, but the cover may be increased if the need arises.
SBI has a provision coverage ratio of 38.72 per cent, which is far below the industry average. RBI has asked the country's largest lender to increase the cover to at least 50 per cent.
"Generally, as per the prudential guidelines, PCR is 40 per cent. But they (RBI) have been indicating that it should be at least 50 per cent," SBI chief financial officer, S Ranjan told PTI news agency in Mumbai.
"That (low PCR) is because one account, Dabhol, got classified as a non-performing asset last year. It will now be re-classified as a standard asset. Automatically, the provision will go up to 43 per cent," Ranjan said. He was referring to Maharashtra's power project that is still struggling after repeated state intervention.
Earlier, in a letter to the country's largest bank, RBI had sought an improvement in the PCR. This is the amount a bank expects to forgo from a loan if it has to write it off.
RBI has also pointed out that SBI's PCR has been slipping on a year-on-year basis even as many banks have raised this ratio in the past few years. SBI's PCR has come down from 49 per cent in 2005-06 to the present 38.72 per cent.
As of March 2009, the PCR of Punjab National Bank stood at 90 per cent. The PCR of HDFC Bank was 68 per cent, and that of Bank of Baroda was 72 per cent.
''The loan loss provisions have been made by SBI in terms of prudential guidelines for provisioning norms issued by RBI. While making provisions, the bank has ensured that the provisions are adequate for any diminution in the value of loan assets, investment or other assets and the same is verified by independent statutory auditors of the bank,'' SBI said.
