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
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.