What is Provision Coverage Ratio (PCR)?
Provision Coverage Ratio (PCR) is the ratio of total provisions held against an NPA portfolio to the gross NPAs. A higher PCR shows the bank is well-cushioned against losses on its NPAs and is a key metric tracked by RBI and rating agencies.
| Meaning | Provision Coverage Ratio (PCR) is the ratio of total provisions held against an NPA portfolio to the gross NPAs. A higher PCR shows the bank is well-cushioned against losses on its NPAs and is a key metric tracked by RBI and rating agencies. |
|---|---|
| Category | Banking |
| Related Laws | RBI directions |
| Who Uses It | Banks, RBI, investors |
| Why It Matters | Strong PCR allows banks to offer more aggressive settlement discounts. |
Provision Coverage Ratio (PCR) explained in plain English
A practitioner's view written for borrowers and advisors — not a textbook definition.
Provision Coverage Ratio (PCR) is the ratio of total provisions held against an NPA portfolio to the gross NPAs. A higher PCR shows the bank is well-cushioned against losses on its NPAs and is a key metric tracked by RBI and rating agencies.
In practice, Provision Coverage Ratio (PCR) is used most often by banks, rbi, investors. Each of them sees the term from a slightly different angle: borrowers care about protection and outcomes, lenders care about classification and recovery, regulators care about consistency and disclosure.
The legal anchor for Provision Coverage Ratio (PCR) is RBI directions. RBI master directions, the SARFAESI Act 2002, the RDB Act 1993 and the IBC 2016 commonly interplay, depending on the loan size, security and stage of stress.
Why does it matter? Strong PCR allows banks to offer more aggressive settlement discounts. For a stressed borrower, getting this concept right early often saves several months of penal interest, legal cost and credit-score damage.
A real example: A PSU bank reports PCR of 78% on its ₹1.2 lakh crore NPA book. The mechanics may look complex, but the underlying logic — the bank wants closure, the borrower wants a fair outcome — is straightforward once the right framework is in place.
If you are facing a situation involving Provision Coverage Ratio (PCR), the safest first step is a structured case review with a senior ex-banker who has handled comparable matters across banks and ARCs in India.
Where you'll encounter Provision Coverage Ratio (PCR)
Whenever a loan moves from "Standard" to "stressed", Provision Coverage Ratio (PCR) is one of the words that starts appearing in notices, bank emails and lawyers' opinions.
Sanctioning committees, recovery teams and risk officers use Provision Coverage Ratio (PCR) to classify accounts, decide provisioning and approve resolution paths.
Provision Coverage Ratio (PCR) appears in pleadings, securitisation applications, OAs, Section 7/9 petitions and SARFAESI writs as part of the dispute record.
When stressed loans are sold to ARCs or special-situations investors, Provision Coverage Ratio (PCR) is used in term sheets, assignment agreements and due-diligence reports.