FinMin hopes 3-4 banks to be out of PCA this fiscal
The finance ministry hopes that 3-4 banks would come out of the RBI’s Prompt Corrective Action (PCA) watchlist this fiscal, following the expected modification of guidelines and apparent improvement in bottom-line of the public sector banks, people familiar with the matter said.
Of the 21 state-owned banks, 11 are under the PCA framework, which imposes lending and other restrictions on weak lenders. These are 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 and Bank of Maharashtra.
Last week, the RBI in its central board meeting decided the issue of banks under PCA will be examined by Board for Financial Supervision (BFS) of the central bank. The PCA framework kicks in when banks breach any of the three key regulatory trigger points—namely capital to risk weighted assets ratio, net nonperforming assets (NPA) and return on assets (RoA).
Globally, PCA kicks in only when banks slip on a single parameter of capital adequacy ratio, and the government and some of the independent directors of the RBI board, like S Gurumurthy, are in favour of this practice being adopted for the domestic banking sector as well.
However, the RBI has strongly defended the PCA framework in the past. Last month, its deputy governor Viral Acharya had said that any relaxation in the PCA imposed on weak banks should be avoided as it is an essential element of its financial stability framework.