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      Question

      The Reserve Bank of India's Financial Stability Report

      (FSR) heavily monitors the "Provisioning Coverage Ratio" (PCR) of commercial banks. A high PCR signifies that:
      A The bank is highly exposed to unhedged foreign exchange risks. Correct Answer Incorrect Answer
      B The bank has set aside a larger proportion of its funds to cover potential losses from bad loans (NPAs). Correct Answer Incorrect Answer
      C The bank's credit-to-deposit ratio has crossed safe macroprudential thresholds. Correct Answer Incorrect Answer
      D The bank is heavily reliant on short-term call money markets. Correct Answer Incorrect Answer

      Solution

      The Provisioning Coverage Ratio (PCR) measures the percentage of bad loans that a bank has covered through provisions. A high PCR (e.g., above 70-80 percent) indicates that the bank has built a strong financial cushion to absorb asset quality shocks without impacting its core capital base or future profitability.

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