The Telegraph
Monday , December 10 , 2012
Since 1st March, 1999
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RBI ire at bad asset accounting

Mumbai, Dec. 9 (PTI): RBI deputy governor K.C. Chakrabarty has come down heavily on banks showing higher profits without providing adequately for bad loans and said if need be, the central bank might hike provision coverage ratio (PCR) levels.

“Why banks need to show profits as high as 25 per cent? They can show 5 per cent growth in their profits. If they are not doing (providing more), I will increase it (PCR),” he said.

The RBI had done away with its earlier requirement of forcing banks to maintain PCR, or the ratio of provision to gross non-performing assets (NPAs), at 70 per cent.

The apex bank had increased PCR to 70 per cent after the Lehman crisis in 2008 and this was applicable till September 2011. While almost all private banks have higher PCR, the majority of the state-run lenders could not meet this deadline.

A number of PSU banks, especially the smaller ones, have shown a drop in PCR in the second-quarter earnings and posted a good jump in profits as a result.

The RBI has floated a discussion paper to explore dynamic provisioning. which requires banks to keep aside money during good times for a rainy day rather than providing after an account has gone bad.

Chakrabarty attributed a majority of NPAs to poor administration and risk management practices.