The State Bank 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 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 norm. 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.