The Provisioning Coverage Ratio (PCR) is a banking sector metric that measures the extent to which a bank has set aside loan loss provisions to cover its gross non-performing assets (NPAs) — expressed as the ratio of cumulative provisions to gross NPAs. PCR = (Cumulative Provisions ÷ Gross NPAs) × 100. A higher PCR indicates that a bank has proactively provisioned a larger proportion of its stressed loan book, providing a stronger financial cushion against potential credit losses and reducing the risk of future earnings shocks from additional provisioning requirements. The RBI has periodically set minimum PCR requirements for Indian banks — during the 2015 to 2018 NPA recognition cycle, the RBI required banks to maintain PCRs of 60% and above. Well-provisioned Indian banks with PCRs of 70% to 80% or above are considered financially healthier than peers with lower ratios, as they have already absorbed more of the expected credit losses through their P&L. For Indian banking sector equity investors, PCR is one of the most important indicators of asset quality risk — a low PCR with high gross NPAs signals that significant future provisioning will be required, creating earnings pressure and potentially requiring capital raising. Improving PCR trends (rising ratios) for Indian PSU and private banks were a key driver of the Indian banking sector re-rating cycle between 2021 and 2023.
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