Sick banks: RBI panel may not revisit Prompt Corrective Action Framework

By: | Updated: December 6, 2018 7:15 AM

Meanwhile, the government is planning to give priority to PCA-banks over relatively strong ones, as it gears up for the next round of capitalisation in December.

While the weak banks will get capital only to meet their regulatory requirement, strong ones will get growth capital as well.

A central bank panel under governor Urjit Patel is unlikely to revisit the prompt corrective action (PCA) framework for weak banks in its much-awaited meeting on Thursday. Instead, it could just review the performance of 11 of the 21 state-run banks that are under the Reserve Bank of India’s
(RBI) corrective regime, a source close to the development told FE.

Meanwhile, the government is planning to give priority to PCA-banks over relatively strong ones, as it gears up for the next round of capitalisation in December. While the weak banks will get capital only to meet their regulatory requirement, strong ones will get growth capital as well.

However, since LIC is acquiring a majority stake in IDBI Bank — which has one of the worst non-performing asset (NPA) ratios — the government isn’t planning any infusion into it this fiscal. In 2017-18, IDBI Bank had got recap bonds worth `10,610 crore, the highest among public-sector banks (PSBs).
As for the PCA review, it may take place once the performance of the weak banks is appraised by the regulator, an official source said.

In its last meeting on November 19, the RBI’s central board decided that the PCA matter “will be examined by the Board for Financial Supervision of the RBI” (headed by Patel). While the government has been seeking an alignment of the “stringent” PCA norms with the best globally, the RBI has been opposed to any relaxation in the framework.

Of the 11 PCA-banks, two — Dena Bank and Allahabad Bank — even face restriction on lending. These stressed banks make up for 30% of deposits and 29% of advances of all the 21 PSBs.
Of the planned infusion of Rs 65,000 crore through recapitalisation bonds this fiscal, the government has already issued securities worth around Rs 23,000 crore and the plan to release another `42,000 crore will be finalised by end-December.

Sources had earlier said that as and when the central bank’s panel reviewed the PCA, it could revisit the three indicators of the PCA framework — capital-to-risk-weighted-assets ratio (CRAR), net non-performing assets (NPA) and return on assets (RoA). A bank that breaches stipulated thresholds in two of these runs the risk of inviting the PCA action. However, no substantial dilution of the PCA framework is expected.

The government believes the worst is over for state-run banks, including the stressed ones. After the Q1 results, financial services secretary Rajiv Kumar said PSBs’ operating profits had risen 11.5% quarter-on-quarter and losses dropped 73.5%.

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