Provision Coverage Ratio
Ratio of loan loss reserves to gross NPAs, indicating buffer against defaults.
Detailed Description
Provision Coverage Ratio
What does a higher Provision Coverage Ratio indicate?
A higher PCR suggests that a bank is well-prepared to handle potential defaults.
Why is the Provision Coverage Ratio important for banks?
The PCR is crucial for regulatory compliance and risk management, indicating a bank's financial health.
How is the Provision Coverage Ratio calculated?
PCR is calculated using the formula: PCR = (Total Provisions / Total Non-Performing Assets) × 100.
What are the two primary components of the PCR?
The two components are Total Provisions and Total Non-Performing Assets (NPAs).
What are some limitations of the Provision Coverage Ratio?
Limitations include being a static measure, varying quality of provisions, and sensitivity to market dynamics.