What changed
Previously, banks were required to maintain a 70% PCR on gross NPAs on an ongoing basis. Now, the 70% PCR is a one-time requirement as of September 30, 2010, and any surplus provisions must be set aside in a 'countercyclical provisioning buffer' account. Banks that missed the September 30, 2010 deadline must calculate the shortfall and seek RBI approval for additional time beyond March 31, 2011.
What it means for you
This change reduces the ongoing provisioning burden for banks that have already met the 70% PCR target, freeing up capital for lending. The countercyclical buffer provides a cushion for future downturns but restricts its use without RBI approval, ensuring prudent risk management. Banks with shortfalls face pressure to build provisions quickly or seek extensions.
What you must do
- Calculate PCR as of September 30, 2010, using the prescribed format, and segregate surplus provisions into the countercyclical provisioning buffer account.
- If you missed the September 30, 2010 deadline, compute the shortfall and submit a revised timeline to RBI for approval if needed beyond March 31, 2011.
- Disclose the PCR in the Notes to Accounts to the Balance Sheet as per existing requirements.
- Ensure the countercyclical buffer is used only for specific provisions during system-wide downturns and only with prior RBI approval.
Who it affects
All scheduled commercial banks (excluding RRBs), Banks that have already achieved 70% PCR, Banks that received extensions to meet the 70% PCR target
Is the 70% PCR still an ongoing requirement?
No, it is now a one-time requirement as of September 30, 2010. Banks that met it do not need to maintain it continuously, but surplus provisions must be held in a countercyclical buffer.
What happens if my bank didn't meet the 70% PCR by September 30, 2010?
You must calculate the shortfall as of that date and build it up as soon as possible. If you need more time beyond March 31, 2011, you must reassess and seek RBI approval.
Can we use the countercyclical provisioning buffer for any purpose?
No, it can only be used for making specific provisions for NPAs during a system-wide downturn, and only with prior RBI approval.