Provision Coverage Ratio in Banks: How PCR, Slippage and Credit Cost Fit Together

The provision coverage ratio in banks asks a simple, slightly uncomfortable question: of the loans that have already gone bad, how much money has the bank put aside to cover the loss? You’ll find it in nearly every quarterly results release, usually sitting next to gross and net NPAs. On its own, though, it can fool you. In this guide we’ll walk through how the ratio is worked out, why two banks with similar books can show very different numbers, and how it ties in with the two other lines that matter most when you check asset quality: slippage and credit cost. It builds on our main guide to how to analyse quarterly results of a company, and we’ll use numbers from the September 2026 quarter (Q2 FY27) to show each idea in practice.

The regulatory definitions here are the Reserve Bank of India’s. Bank figures are from results coverage by Business Standard, Free Press Journal, Kalkine, Investing.com and GuruFocus, linked where we use them.

What the provision coverage ratio in banks actually measures

Start with the RBI’s own words, because they’re the clearest. Its December 1, 2009 circular on provisioning coverage for advances says the provisioning coverage ratio “is essentially the ratio of provisioning to gross non-performing assets and indicates the extent of funds a bank has kept aside to cover loan losses.” As a formula:

PCR (%) = Provisions held against NPAs ÷ Gross NPAs × 100

A non-performing asset (NPA) is a loan that’s stopped being serviced. Once a loan slips into that bucket, the bank charges a provision to its profit and loss account and holds it against the loan. Say a bank has ₹100 crore of gross NPAs and has provided ₹75 crore against them. Its PCR is 75%, and its net NPAs (broadly, gross NPAs minus provisions) are ₹25 crore. The higher the PCR, the less of the bad book is still sitting unprovided on the balance sheet, and the smaller the blow to future profit if that money never comes back.

The RBI’s calculation format, attached to the same circular, adds a few things to the top line. Apart from specific provisions on NPAs, the cover also counts floating provisions (only to the extent they aren’t used as Tier II capital), DICGC and ECGC claims received and held pending adjustment, and part payments received and parked in a suspense account. The bit investors most need to know: the format adds technical or prudential write-offs to both the gross NPA figure and the provisions figure.

Two PCRs: with and without technical write-offs

The RBI circular defines a technical or prudential write-off as non-performing loans that are still outstanding in branch books but have been written off, fully or partly, at head office level, with the amount certified by statutory auditors. Put simply, the bank has already booked the loss, but it hasn’t given up on getting the money back.

Here’s the catch. If a ratio is below 100% and you add the same amount to the top and the bottom, it always goes up. Take a hypothetical bank with ₹100 crore of gross NPAs and ₹70 crore of provisions: its PCR is 70%. If it has also technically written off another ₹100 crore, the RBI-style ratio becomes (70 + 100) ÷ (100 + 100), or 85%. The live bad book hasn’t changed at all. Only the definition has.

That’s why many banks report two numbers, and why you have to check which one you’re comparing. RBL Bank’s Q2 FY27 presentation, as summarised in Investing.com’s review of the RBL Bank slides, gave a provision coverage ratio of 71.47%, or 95.31% including technical write-offs. Same bank, same quarter, and a gap of nearly 24 percentage points that comes purely from the definition.

Canara Bank is a good one to practise on. Business Standard’s report on Canara Bank’s Q2 results says the bank’s provision coverage ratio improved to 95.34% at the end of September 2026, from 94.76% in June 2026 and 93.59% a year earlier; Free Press Journal’s results report has the same three figures. The Business Standard report also puts gross NPAs at ₹18,299 crore and net NPAs at ₹4,053 crore. If we treat the difference as provisions, rough coverage works out to (18,299 − 4,053) ÷ 18,299, or about 77.9%. When the rough number and the headline are that far apart, the headline is usually on the RBI-style basis that includes technical write-offs. The bank’s investor presentation is where you confirm which definition it uses.

Run the same sum on the year-ago figures in that report (gross NPAs of ₹27,040 crore, net NPAs of ₹6,113 crore) and you get roughly 77.4%. So the headline ratio rose 175 basis points year on year, while rough coverage on the live bad book went up by only about half a percentage point. Both moved the right way. The second, though, tells you more about how much loss is still left to absorb.

A 95% coverage ratio and a 72% coverage ratio can describe the same bank in the same quarter. Before comparing two banks, make sure both numbers are measured the same way.

For the system as a whole, the RBI publishes the narrower version. Its Report on Trend and Progress of Banking in India 2024-25 (released December 29, 2025) put the PCR of scheduled commercial banks, not adjusted for write-offs, at 76.3% at end-March 2025: 78.5% for public sector banks and 72.6% for private banks. By end-September 2025 the system figure was 76.0%. Those are sensible yardsticks when you’re looking at one bank’s ex-write-off ratio.

Slippage: where new NPAs come from

PCR is a photo of the bad book as it stands. Slippage tells you how quickly it’s being topped up. The RBI glossary defines the slippage ratio as fresh accretion of NPAs during the year divided by total standard assets at the start of the year, multiplied by 100. Banks that report quarterly usually annualise it so it lines up with yearly numbers.

At the system level, the same RBI Trend and Progress report says the slippage ratio of scheduled commercial banks fell for the fifth year running to 1.4% at end-March 2025, and dropped again to 1.3% at end-September 2025.

Here’s what the Q2 FY27 numbers from two banks look like:

• Canara Bank: fresh slippages came in at ₹1,844 crore for the quarter, against ₹1,781 crore the quarter before, and the annualised slippage ratio was 0.58%, 18 basis points lower than a year ago, per Business Standard. On the earnings call, as reported in GuruFocus’s Canara Bank call highlights, management said agriculture (₹687 crore) and MSME (₹770 crore) made up most of it, and that the slippage ratio beat its 0.80% guidance.
• RBL Bank: slippages were ₹743 crore, and credit cards, personal loans and microfinance accounted for ₹688 crore of that, according to Business Standard’s RBL Bank Q2 report. The slide summary shows gross slippages at 0.77%, down from 0.98% a year earlier, and net slippages at 0.64%.

Where the slippage comes from matters as much as how big it is. Bad loans in unsecured retail tend to get written off quickly and need heavy provisioning. Slippage in secured or government-backed segments may see better recoveries. So two banks with an identical slippage ratio can need very different provisions.

Credit cost: the profit and loss side

Credit cost is the flow that connects slippage to PCR. As the Inve guide to analysing a bank stock describes it, credit cost is the provisions charged against the quarter’s profit for expected losses, shown as a percentage of the loan book. Banks normally quote it annualised, in basis points.

• Canara Bank: annualised credit cost dropped 21 basis points year on year to 0.47%, per Business Standard. Kalkine’s review of the Canara Bank filing shows NPA-related provisions of ₹1,338.66 crore in Q2 FY27, down from ₹1,503.63 crore in Q2 FY26.
• RBL Bank: provisions jumped 53% year on year and 28% quarter on quarter to ₹766.5 crore, and credit cost rose 9 basis points sequentially to 63 basis points, with unsecured retail contributing 51 basis points, per Business Standard. The slide summary adds that the 63 basis points include 11 basis points of standard asset provisions, which are set aside on loans that are still performing.

That last point is easy to miss. Credit cost isn’t only about NPAs. Provisions on standard assets, restructured loans or one-off items all run through the same line, so look at the breakdown before you decide that a rising credit cost means rising stress.

How PCR, slippage and credit cost fit together

We find it helps to picture the bad-loan book as a water tank. Slippage is what flows in. Recoveries, upgrades back to standard and write-offs are what flows out. Provisions are the cover the bank builds against whatever remains, and credit cost is the quarterly bill for building that cover.

If a bank’s PCR is already high, most of the loss on its existing NPAs has been paid for, and its future credit cost depends mostly on new slippage. If PCR is low, there’s a backlog. Even with flat slippage, the bank may have to raise provisions later to catch up, and that extra charge will hit profit in some future quarter.

Put the three side by side and a few patterns show up:

• Healthy: slippage falling or steady, credit cost steady, PCR steady or rising. The bank is keeping pace with new stress and covering old stress.
• Catching up: credit cost rising while slippage is flat, and PCR going up. Profit is being held back to shore up the balance sheet, which often comes before a cleaner run.
• Warning sign: slippage rising while credit cost falls and PCR drops. The bank may be recognising losses more slowly than they’re piling up, which flatters today’s profit.
• Write-off driven: gross NPAs falling sharply with little change in slippage. Find out whether the drop came from recoveries or write-offs; write-offs tidy up the ratios but don’t bring any money back.

Slippage shows where next quarter’s bad loans are forming, credit cost shows what is being recognised now, and PCR shows how much of the past has already been paid for.

Where the 70% PCR benchmark came from

People often judge Indian bank PCRs against a 70% mark, and that number has its roots in RBI history. The December 2009 circular noted that provisioning for NPAs then ranged between 10% and 100% of the outstanding amount, depending on the age of the NPA, the security available and each bank’s own policy, so coverage varied widely from bank to bank. Taking a macro-prudential view that banks should build buffers while profits are good, it told them to keep their total provisioning coverage ratio, including floating provisions, at no less than 70%, and to get there by end-September 2010.

The RBI later clarified this in an April 21, 2011 circular on the PCR for advances. The 70% was to be measured against the gross NPA position as of September 30, 2010, and any surplus over the provisions required under prudential norms was to go into a “countercyclical provisioning buffer”. Banks could draw on that buffer for specific NPA provisions in a system-wide downturn, with the RBI’s prior approval. So today’s 70% figure is a market benchmark that grew out of a one-time requirement, not a test banks have to pass every quarter.

What changes when expected credit loss rules arrive

India is moving to an expected credit loss (ECL) model for provisioning. The RBI’s April 27, 2026 press release on asset classification and provisioning directions says the final directions for commercial banks take effect from April 1, 2027.

As Business Standard’s report on the final ECL norms lays out, loans will fall into three stages. Stage 1 standard loans with no significant rise in risk attract 12-month expected loss provisions. Stage 2 loans with heightened risk attract lifetime loss provisions, and credit-impaired Stage 3 assets also attract lifetime expected losses. Standard corporate and retail loans will carry a minimum Stage 1 provision of 0.40%, going up to 5% in Stage 2, and banks can spread the extra provisions from the transition over four years ending March 31, 2031.

What this means for investors is that provisions will start building before a loan goes bad, not just after. On its Q2 FY27 call, Canara Bank’s management told analysts it now puts the one-time ECL provision at ₹12,000 crore to ₹15,000 crore, up from an earlier ₹10,000 crore to ₹12,000 crore, pointing to hardening yields and the inclusion of its held-to-maturity portfolio, as GuruFocus reported. Around the April 2027 switch, comparing credit cost and coverage will mean separating what changed in the rules from what changed in the loan book.

A checklist for reading PCR in bank results

1. Find the definition. See whether the reported PCR includes technical write-offs. If the bank gives both, compare using the narrower one.
2. Do the rough check. Work out (gross NPAs − net NPAs) ÷ gross NPAs from the reported crore figures. A wide gap from the headline means write-offs are pumping it up.
3. Look at the trend, not one quarter. Compare with the previous quarter and the same quarter last year, as we did with Canara above.
4. Pair it with slippage. A high PCR on a bad book that’s growing fast is less reassuring than a moderate PCR on one that’s shrinking.
5. Read the credit cost breakdown. Pull NPA provisions apart from standard asset or one-off provisions.
6. Ask about the next rule change. Note any ECL transition estimate the bank shares, because it will shape future provisions and capital.

New to bank results? Our explainer on CASA ratio meaning covers the funding side of the same results table, and our Canara Bank Q2 results report has the rest of that bank’s quarter, including profit and margins.

To sum up: the provision coverage ratio in banks shows how much of today’s bad-loan problem has already been paid for, but only once you know how it was measured. Read it with slippage and credit cost, and it becomes one of the better early checks on whether a bank’s profits are as clean as they look.