In the context of banking, PCR stands for Provisioning Coverage Ratio. It represents the percentage of funds a bank reserves to cover potential losses from non-performing assets (NPAs), also known as bad debts. A higher PCR indicates a bank's greater preparedness to absorb losses stemming from borrowers' loan defaults. This metric is crucial for assessing a bank's financial health and risk management strategies. A high PCR is generally considered beneficial, acting as a buffer against unexpected increases in NPAs.
The PCR is calculated by dividing the total provision for bad debts by the total amount of NPAs. For example, if a bank has provisions of $10 million against $20 million in NPAs, its PCR is 50%.
Several sources confirm this definition:
- Groww.in: "A Provisioning Coverage Ratio or PCR is the percentage of funds that a bank sets aside for losses due to bad debts. A high PCR can be beneficial to banks to buffer themselves against losses if the NPAs start increasing faster." (https://groww.in/blog/how-to-check-financial-health-of-bank)
- EBRD Evaluation Report: The European Bank for Reconstruction and Development (EBRD) uses PCR in their assessment reports, indicating its importance in banking evaluations. (https://www.ebrd.com/downloads/evaluation/0705-2.pdf)
It's important to note that PCR is distinct from the use of "PCR" in other contexts, such as in computing (Platform Configuration Register) or molecular biology (Polymerase Chain Reaction). The meaning depends entirely on the context.
