What Is The Full Form Of PCR In Banking?

PCR full form in banking is the Provisioning Coverage Ratio. Businesses set aside provisions in case they anticipate losses or unanticipated bad loans. It refers to the provision coverage ratio. Indian banks are required to establish a provision fund to cover their projected bad loans. The PCR aids in assessing a bank’s financial standing. Banks use their own resources, primarily their revenues, to set up reserves for problematic loans. Additionally, banks must include the Provision Coverage Ratio (PCR) in Notes to Accounts to the Balance Sheet in their yearly financial statements.

What Else Should You Know About PCR?

Initially, RBI established a PCR threshold of 70%. This implies that the bank must reserve 70% of its total loans as a contingency fund. For banks, a higher PCR is desirable since it helps them when their non-performing assets (NPAs) increase more quickly. A PCR that is more than 70% is ideal.

The PCR provides insight into the bank’s susceptibility to non-performing assets (NPAs). The Reserve Bank of India has also recommended banks to set aside their excess provisions as a countercyclical provisioning buffer. The RBI must grant the banks specific authorization before they can use this money as needed. To have a “Dynamic Provisioning Account” for usage in a downturn, RBI also encourages banks to open one during their prosperous years.