Eleven public sector banks are under the radar of the Reserve Bank of India (RBI) over the issue of non-performing assets. These banks have been brought under the central bank's Prompt Corrective Action (PCA) framework with an aim to check NPAs
Eleven public sector banks are under the radar of the Reserve Bank of India (RBI) over the issue of non-performing assets. These banks have been brought under the central bank’s Prompt Corrective Action (PCA) framework with an aim to check NPAs, The Indian Express reported. It has been learnt that five more banks are set to be brought under the PCA framework. This comes months after the central government had allocated capital of Rs 52,311 crore to 11 “weak banks” to maintain their minimum capital requirement. Apart from this, the Centre also infused Rs 35,828 crore in nine “strong banks”.
What is PCA?
PCA, which stands for Prompt Corrective Action, generally restricts lending activities of the banks, according to the report. The RBI had come out with a more stringent PCA framework in April 2017 to turn around lenders with weak operational and financial metrics. Banks under this framework are restricted from opening new branches, staff recruitment and increasing the size of their loan book depending on the risk thresholds set in PCA rules. Apart from these, banks are directed to disburse loans only to those companies whose borrowing is above investment grades. The RBI enforces these guidelines to ensure banks do not go bust and follow prompt measures to put their house in order.
List of Banks
The 11 banks on the RBI’s watch-list include Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank, Bank of Maharashtra. Five banks which could be brought under the PCA are Andhra Bank, Punjab National Bank, Canara Bank, Union Bank and Punjab & Sind Bank.
Impact on industry
According to The Indian Express report, small and medium enterprises will have to bear the brunt due to this move by RBI. A senior bank official said, “Since the PCA framework restricts the amount of loans banks can extend, this will definitely put pressure on credit being made available to companies especially the MSMEs. Large companies have access to the corporate bond market so they may not be impacted immediately.” It has been predicted that if more state-owned banks are brought under PCA, it will impact the credit availability for the MSME segment.
Experts have said that it will take a minimum of 6-9 months for these banks to report any noticeable improvement in the key regulatory indicators, which may help them come out of PCA.