Health of banks be­ing re­stored un­der PCA regime: RBI of­fi­cial

The Hindu Business Line - - BANKING -

There are emerg­ing signs that the per­for­mance of banks un­der prompt cor­rec­tive ac­tion (PCA) is slowly but steadily be­ing re­stored, ac­cord­ing to the Re­serve Bank of In­dia Deputy Gover­nor, Vi­ral Acharya.

PCA is a struc­tured early in­ter­ven­tion and res­o­lu­tion frame­work by the RBI for banks that be­come un­der­cap­i­talised due to poor as­set qual­ity, or vul­ner­a­ble due to loss of prof­itabil­ity.

Specif­i­cally re­fer­ring to the 11 pub­lic sec­tor banks that are un­der PCA, Acharya ob­served that the de­clin­ing trend of CRAR (cap­i­tal to risk-weighted as­sets ra­tio) and Tier-1 (core) cap­i­tal ra­tio for PCA banks that started in 2011 has been ar­rested, and the ra­tio has been main­tained steady since 2014 at or above in­ter­na­tion­ally-pre­scribed lev­els.

At present, there are 12 banks, 11 in the pub­lic sec­tor and one in the pri­vate sec­tor, un­der the Re­serve Bank’s Re­vised PCA Frame­work, with PCA hav­ing been im­posed on them be­tween Fe­bru­ary 2014 and Jan­uary 2018.

Em­pha­sis­ing that the tide is turn­ing for the PCA banks, Acharya said re­cap­i­tal­i­sa­tion (by the gov­ern­ment) has been an im­por­tant con­trib­u­tor to fi­nan­cial sta­bil­ity of the 11 PCA banks and of the rest of the bank­ing sys­tem they deal with.

At a lec­ture at In­dian In­sti­tute of Tech­nol­ogy, Bom­bay, the Deputy Gover­nor, said: “Given the re­cap­i­tal­i­sa­tion and pre­ven­tion of fur­ther hem­or­rhag­ing, the pro­vi­sion cov­er­age ra­tio (PCR) of PCA banks which had fallen off rel­a­tive to that of other banks start­ing 2011 and reached be­low 40 per cent dur­ing 2012-2016, has now re­cov­ered to that of non-PCA PSBs.”

The re­cov­ered level of PCR re­mains at present at around 50 per cent, which is 10 per cent be­low that of pri­vate banks, and away from the de­sir­able 70 per cent.

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