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Provision coverage ratio: formula, example and how to read it
The provision coverage ratio, or PCR, is the provisions a lender holds against its bad loans as a share of gross NPA. It answers one question: how much of the bad book has the lender already set money aside for? Gross NPA says how big the problem is. PCR says how much of it is covered.
How is the provision coverage ratio calculated?
- Provision coverage ratio = provisions held against NPAs divided by gross NPAs, times 100.
RBI's directions for commercial banks define PCR in the same way: the ratio of provisioning to gross non-performing assets, which shows how much has been kept aside to cover loan losses (para 5(9) of the Directions of 28 November 2025).
The same directions say RBI has not prescribed a minimum PCR for a bank. The level is left to each bank (para 121). So there is no pass mark to quote. You compare a lender with its own past and with peers that use the same definition.
Worked example: PCR for one lender
| Gross advances | 1,000 |
|---|---|
| Gross NPAs | 40 |
| Provisions held against NPAs | 25 |
| Gross NPA ratio | 40 / 1,000 = 4.0% |
| Provision coverage ratio | 25 / 40 = 62.5% |
This is the same illustrative lender as in the gross NPA vs net NPA guide. The numbers are made up to show the arithmetic.
Now take the next quarter. Gross NPAs rise to 50 and provisions rise to 30.
| Gross NPAs | 50 |
|---|---|
| Provisions held against NPAs | 30 |
| Provision coverage ratio | 30 / 50 = 60.0% |
The lender set aside 5 crore more, and PCR still fell from 62.5% to 60.0%. Gross NPAs grew faster than provisions did. This is the most common reason PCR drops, and it is why you read PCR with the NPA trend and not alone.
PCR, gross NPA and net NPA side by side
| Ratio | Formula | Question it answers |
|---|---|---|
| Gross NPA ratio | Gross NPAs / gross advances | How much of the book has gone bad? |
| Net NPA ratio | Net NPAs / net advances | How much of the bad book is not yet covered? |
| Provision coverage ratio | Provisions held against NPAs / gross NPAs | How much of the bad book is already covered? |
Only the denominators differ. Gross NPA and net NPA divide by advances. PCR divides by the NPAs themselves, so a lender with a small bad book can show a high PCR and a lender with a large one a low PCR.
Why does PCR move?
- Fresh slippages add to gross NPAs before the full provision is made, which pulls PCR down.
- More provisioning on the same NPAs pushes PCR up.
- A recovery or upgrade reduces gross NPAs and releases provisions. The effect on PCR depends on how much of each.
- A write-off takes the loan out of both gross NPAs and the provisions held against it. Read the write-off line before you read PCR.
Which provisions count towards PCR?
Two lenders can quote different PCRs for the same book because the numerator is not the same. Ask three questions before you compare.
- Are write-offs already made added back? Some lenders quote a second PCR that adds them back. That figure is higher than the plain one.
- Does the numerator include only provisions against NPAs, or also provisions on standard assets?
- For lenders that report under Ind AS, is the figure for Stage 3 only, or does it include the allowances on Stage 1 and Stage 2?
From 1 April 2027, RBI's expected credit loss directions for commercial banks treat Stage 3 allowances as specific provisions (para 75 of the Directions of 27 April 2026). The expected credit loss guide explains the stages.
Where do the numbers come from?
Gross NPAs come from your loan system. Provisions held usually come from the finance ledger, not the loan system. Reconcile the two at the same date before you divide one by the other. A month-end NPA figure set against a quarter-end provision figure gives a ratio that means nothing.
A real figure for scale
RBI's Financial Stability Report of June 2026 puts the provision coverage ratio of scheduled commercial banks at 75.6% in March 2026, with gross NPA at 1.8% and net NPA at 0.4% (p.63). It is a bank-wide figure across all loans. Use it for scale, not as a target for one lender or one product.
What mistakes should you avoid?
- Dividing provisions by gross advances instead of gross NPAs.
- Comparing a bank's PCR with an NBFC's without checking what each counts as provisions.
- Reading a high PCR as good news when gross NPAs are rising fast.
- Mixing a whole-book PCR with a PCR for one product.
- Using provisions from one date and NPAs from another.
Sources
- RBI: Commercial Banks, Income Recognition, Asset Classification and Provisioning Directions, 2025
- RBI: Commercial Banks, Asset Classification, Provisioning and Income Recognition Directions, 2026
- RBI: Financial Stability Report, June 2026
Try it on your own tables
The free tools give you the prompt, the checks and how to present the result. You enter table names only.
See the free toolsFrequently asked questions
What is the provision coverage ratio?
Provisions held against NPAs divided by gross NPAs. It shows how much of the bad book is already covered by provisions.
What is a good provision coverage ratio?
RBI has not set a minimum PCR for banks, so there is no single pass mark. Compare a lender with its own history and with peers that define provisions in the same way.
How is PCR different from the gross NPA ratio?
The gross NPA ratio divides NPAs by advances and measures the size of the problem. PCR divides provisions by NPAs and measures how much of the problem is covered.
Why can PCR fall when provisions rise?
If gross NPAs rise faster than provisions, the ratio falls. In the example above, provisions rise from 25 to 30 crore and PCR falls from 62.5% to 60.0% because NPAs rise from 40 to 50 crore.
Keep reading
Gross NPA vs net NPA: the difference and how to calculate both
Gross NPA is the total of bad loans. Net NPA subtracts the provisions held against them. Formulas, a worked example and what the provision coverage ratio adds.
RegulationNPA provisioning norms in India: rates for banks and NBFCs
Provisioning rates by asset category for banks and NBFCs under the RBI directions of 28 November 2025, with a worked example and the SQL to apply them.
RegulationExpected credit loss explained: PD, LGD, EAD, Ind AS 109 and the RBI framework
Expected credit loss is PD times LGD times EAD. How the three stages work under Ind AS 109, and what the RBI ECL directions for banks change from 1 April 2027.