The Reserve Bank’s decision to ask banks to keep higher provisioning for non-performing assets means that banks now have to make an additional provisioning of Rs 13,000 crore till September end next year, rating agency Crisil said.
“Crisil estimates that the proposed minimum coverage for NPAs will mean that banks now have to make an additional provisioning of Rs 130 billion till end September 2010,” the rating agency said in a release.
Its estimate is based on the NPAs reported by banks as on March 31, 2009. The NPAs were at 2.3 per cent of system advances, while the NPA coverage was around 55 per cent as on that date.
Yesterday, in its quarterly policy review, Reserve Bank has asked banks to ensure that their provision coverage ratio reaches 70 per cent by September end 2010. Provision coverage ratio is the percentage of loan that a bank would lose if it has to write off that account.
Crisil said that the measure will enhance the resilience of the banking system to absorb loan losses.
However, it will also lead to a decline in the sector’s profitability over the near term.
The measure should also increase the consistency in banks’ provisioning for NPAs and facilitate a more meaningful comparison of their profits, the rating agency said.
