PCR in banking stands for Provisioning Coverage Ratio a metric showing what percentage of bad loans (NPAs) a bank has covered with provisions (funds set aside).
Provisioning Coverage Ratio:
- Formula: (Total Provisions / Gross NPAs) × 100
- Measures: Bank's preparedness for loan losses
- Indicator: Financial health and risk management
Why Important:
- Higher PCR = better cushion against defaults
- RBI monitors for banking system stability
- Indicates prudent banking practices
Typical Ranges:
- Strong banks: 70-90% PCR
- Minimum standards: Set by RBI
- Healthy level: 70%+
Related Terms:
- NPA: Non-Performing Asset (bad loan)
- Provision: Funds set aside for potential losses
Importants Points:
- Full form: Provisioning Coverage Ratio
- Purpose: Measures bad loan coverage
- Higher = better bank health