Banks in PCA lean on retail and recovery
Seek relaxation in lending norms, particularly risk-weighted assets, from the government
The 11 state-run banks undergoing prompt corrective action (PCA) are likely to submit individual plans on Friday with a common theme running that they would be focusing on growing their retail book and paring down their legacy corporate loans.
They cannot lend big money to the corporate sector anyway as the PCA framework imposes lending restrictions that eliminates chances of giving such loans. For example, Allahabad Bank said in its filing on May 14 that the RBI has asked it to restrict expansion of risk-weighted assets, reduce exposure to un-rated and high risked advances, restrict creation of non-banking assets, and stop renewing costly deposits.
The banks will now, therefore, focus on retail loans and ramp up their agriculture and micro, small and medium enterprises portfolio. The idea is to lend to those sectors that attract less risk-weight and therefore, requires lesser capital.
The banks will present plans on how they would be cutting down on operating expenses and there would likely be clear road map and self-imposed deadlines on selling off of non-core assets, said bankers in the know. The banks would also spell out how they plan to rationalise their branch network by closing down those branches that generate business below a certain threshold, sources said. It is not clear yet if these banks would also offer voluntary retirement schemes to their people, but the government had earlier said that the banks under PCA would receive capital only when they limit benefits to employees, taking unions under full confidence.
There is already a thought that employees of banks under stress would get lesser wage hike than what the others in the industry would be getting. Limitations in retirals though, was part of the recapitalisation plan. The banks are expected to spell out those in finer detail.
The banks would also like to impress upon the government the improved recovery mechanism and how they plan to reverse some of the write-backs through actively engaging in recovery.
“It would be feasible for banks to come out of PCA by next year. In particular, we expect good recovery from resolution under the National Company Law Tribunal,” said the head of a public sector bank (PSB).
“Focusing on retail lending and reducing exposure to corporate lending is a strategy banks have already adopted. Also, recruitments are restricted by banks,” said another banker with a PSB.
In a meeting last week with Union Finance Minister Piyush Goyal, banks had raised the issue of relaxing PCA norms. One of the common concerns was relaxation in lending norms, particularly risk-weighted assets. Banks also sought cooperation of state governments in implementing the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (also known as the SARFAESI Act).