RBI relaxes norms for provisioning of bad loans

MUMBAI: The Reserve Bank of India has relaxed norms regarding setting aside money for bad loans — a move which has come as a major relief for all commercial banks. The banking regulator has said banks should maintain 70% of the provision coverage ratio (PCR) of their gross bad loans as on September 2010, but they do not have to maintain 70% of PCR on an ongoing basis.

PCR is the amount that a bank expects to forgo from a loan if they have to writeoff that loan account. Thus if a Rs 100 loan has turned bad, setting aside 70% as PCR means that the bank has set aside Rs 70 as provision and it expects to recover Rs 30 of the loan.

Source: EconomicTimes