Mumbai: Reserve Bank of India’s decision to ask banks to keep higher provisioning for non-performing assets may significantly affect profitability of State Bank of India (SBI) and ICICI Bank in the next four quarters, a report said.
“A quick calculation shows that some banks are more affected than others. State Bank of India, ICICI Bank and Canara Bank, which had low provisioning cover, will be impacted more by this measure than others,” a report prepared by Standard Chartered said.
In its quarterly policy review, Reserve Bank of India (RBI) had asked banks to ensure that their provision coverage ratio reaches 70% by September end 2010. Provision coverage ratio is the percentage of loan that a bank would lose if it has to write off that account.
“These banks are likely to witness a significant decline in profitability over the next four quarters to accommodate the higher provisioning requirement,” StanChart said.
At present, SBI has a provision coverage of 45% while ICICI Bank and Canara Bank have 52% and 28% respectively.
As of now, banks are permitted to make provisions in the range of 10% -100% of the outstanding amount, depending on the age of the NPLs and the security available.