Definition
Provision Coverage Ratio (PCR)
The Provision Coverage Ratio is the proportion of a bank's gross non-performing assets covered by provisions, showing how well it is buffered against loan losses.
PCR is total provisions held against NPAs divided by gross NPAs. A higher PCR means the bank has set aside more money for potential losses, leaving lower uncovered net NPAs. The RBI has historically nudged banks toward a PCR of at least 70%.
A strong PCR is a sign of conservative management and gives a bank room to absorb defaults without further hits to profit. When PCR is very high, future recoveries from written-off accounts can even flow back as a write-back, boosting reported earnings.
Related terms
- Gross NPA Ratio (GNPA)The Gross NPA ratio is the share of a bank's total advances that have turned into non-performing assets, before deducting provisions held against them.
- Net NPA RatioThe Net NPA ratio is gross non-performing assets minus provisions held against them, expressed as a percentage of net advances.
- Credit CostCredit cost is the provisioning a bank or NBFC books for bad and doubtful loans during a period, usually expressed as a percentage of average advances.
- Write-Off (Loans)A loan write-off is the removal of a bad loan from a bank's balance sheet against provisions already made, even though the bank may still pursue recovery.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.