Hello Rudra , I was trying to analyse HDFC bank and was computing loan loss coverage account. I’m a little doubtful on how it’s computed can you please take a moment to clarify if at all you know .
Is it a reserve created out of P&L to set aside amount for NPA ? Or should it be a certain % on NPA specified .
loan loss coverage is a reserve created out of P&L to set aside capital to tackle your future potential bad assets
the ratio denotes how much of your doubtful debt (Gross NPA) has been provided for. So if your gross NPA is say 100 Cr, you need to set aside 70 Cr to meet a conservative 70% PCR.
RBI had earlier mandated a 70% PCR as a prudent measure, which was later relaxed in 2011. Link
Hope this helps.
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