PCA Norms could be Eased for Some Bet­ter-Off Lenders

Re­lax­ation to be avail­able only to those that have shown big im­prove­ment in re­solv­ing bad loans

The Economic Times - - Front Page - Dheeraj.Ti­[email protected] times­group.com

New Delhi: The fi­nance min­istry and the Re­serve Bank of In­dia are ex­pected to soon work out some re­lax­ation in the prompt cor­rec­tive ac­tion (PCA) frame­work for stressed banks.

This will be avail­able only to those lenders that have shown con­sid­er­able im­prove­ment in ad­dress­ing bad loans.

As of now, 11 state-run banks and one pri­vate lender are un­der the PCA frame­work, which pre­vents them from riskier lend­ing and ex­pand­ing branches, among other curbs, un­til they re­cover.

“We are not ar­gu­ing for all banks but only for those where re­lax­ation of norms will aid faster re­cov­ery,” said a gov­ern­ment of­fi­cial aware of the de­lib­er­a­tions. Some banks may be able to exit the PCA frame­work as early as Fe­bru­ary, the of­fi­cial said.

The gov­ern­ment’s view is that the case for eas­ing the curbs is stronger now, given that the lenders are well-cap­i­talised after the lat­est tranche of cap­i­tal in­fu­sion. “We have taken care of the cap­i­tal needs. The banks have not only shown im­prove­ment on re­cov­er­ies but have fur­ther de-risked their port­fo­lios,” the of­fi­cial said.

Last month, the gov­ern­ment gave an ad­di­tional .₹ 41,000 crore to state-run lenders, en­hanc­ing the to­tal re­cap­i­tal­i­sa­tion in the cur­rent fi­nan­cial year to .₹ 1.06 lakh crore from .₹ 65,000 crore.

PCA kicks in when lenders breach any of the three key reg­u­la­tory trig­ger points — cap­i­tal to risk-weighted as­sets ra­tio, net non-per­form­ing as­sets and re­turn on as­sets. It was de­cided at the Novem­ber 19 meet­ing when Ur­jit Pa­tel was gover­nor that a sub­com­mit­tee of the RBI’s board will look into the is­sue of re­lax­ation of PCA.

It’s only now, post the hol­i­day, and they come back in the New Year and we start en­gag­ing with them, we will get a sense of where they are. Neg­a­tive chat­ter is never good be­cause it cre­ates doubt in ev­ery­one’s mind. But rather than mi­cro­anal­yse it, we are fo­cused on cap­tur­ing op­por­tu­nity where we see it. It played out in Europe, where rather than back out dur­ing the slow­down, we over-in­vested and now that is pay­ing div­i­dends.

Has TCS put in any con­tin­gency plans to deal with a spend­ing freeze?

Not re­ally. The risk in all of this is that you get too overawed by the macro and then that neg­a­tiv­ity trans­lates to your sales team. It is bet­ter to stay fo­cused. We see de­mand and we are gear­ing up for that de­mand and par­tic­i­pat­ing. The dis­ci­pline area is to run a high util­i­sa­tion so that you are not car­ry­ing a bench. So if you are on a high util­i­sa­tion when it di­lutes, it’s fine. Then it is just a mat­ter of car­ry­ing the bench a bit more and then tweak­ing the hir­ing for the fu­ture. So you have a time-bound prob­lem and not a com­pounded prob­lem. Other than that, for the macro part of it, we are not re­ally po­si­tion­ing our­selves.

You have said TCS is bet­ting on su­pe­rior ex­e­cu­tion to re­turn mar­gins to the tar­geted band. Could you ex­plain what ex­actly gives you the con­fi­dence ?

All el­e­ments of it. It is about project struc­tur­ing. The idea is ap­pro­pri­ate project struc­tur­ing, iden­ti­fy­ing how to break down the task, what is the sup­port­ive qual­ity man­age­ment, what are the process frame­works you can lever­age. We have our own process man­age­ment tool that has in­te­grated qual­ity man­age­ment and project man­age­ment. So then other el­e­ments like keep­ing at­tri­tion low — that also keeps ex­e­cu­tion high be­cause if you have a lot of churn in the team, that it­self has a cost el­e­ment — all of these are op­er­a­tional el­e­ments. From the in­tel­lec­tual as­set per­spec­tive, it is so­lu­tion ac­cel­er­a­tors, frame­works, knowl­edge man­age­ment sys­tems, an in­te­grated ser­vice man­age­ment sys­tem so they can seam­lessly ac­cess peo­ple with dif­fer­ent skill sets, a good train­ing sys­tem… Then we have a de­liv­ery ex­e­cu­tion group — they pro­vide over­sight and in­ter­ven­tion as re­quired. There are a com­bi­na­tion of process, tools, in­tel­lec­tual as­sets and or­gan­i­sa­tion struc­ture — all of these al­low for su­pe­rior ex­e­cu­tion.

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