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FinMin hopes 3-4 banks out of 11 will be out of PCA watchlist this fiscal

Last week, the RBI in its central board meeting decided the issue of banks under PCA will be examined by Board for Financial Supervision of the central bank.

Press Trust of India  |  New Delhi 

Independent directors may take decisions if Govt-RBI standoff continues

The ministry hopes that 3-4 would come out of the RBI's watchlist this fiscal, following the expected modification of guidelines and apparent improvement in bottomline of the public sector banks, sources 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 of India, Corporation Bank, IDBI Bank, UCO Bank, of India, Central of India, Indian Overseas Bank, Oriental Bank of Commerce, and

Last week, the RBI in its central board meeting decided the issue of under (PCA) will be examined by Board for Financial Supervision (BFS) of the central bank.
 

The PCA framework kicks in when breach any of the three key regulatory trigger points -- namely capital to risk-weighted assets ratio, net non-performing 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 sector as well.
 

However, the RBI has strongly defended the PCA framework in the past. Last month, its Deputy Governor 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.

"Imposition of PCA can thus be seen as first, stabilising the banks at risk, and then, undertaking the deeper bank reforms needed for long-term viability of the business model of these banks, he had said.
 

Sources further said various measures taken by the government, including implementation of Insolvency and Bankruptcy Code (IBC), have yielded good results in terms of reining bad loans and increasing recovery.

So, the review by the BFS of RBI, improving performance of the banks and recovery due to IBC give hope that 3-4 banks could move out of PCA by the end of March 2019, they added.

Banks have made recovery of Rs 365.51 billion during the first quarter, registering a 49 per cent growth over the last fiscal.

At the same time, operating profit has risen by 11.5 per cent, while losses fell 73.5 per cent on quarter on quarter basis, he said, adding asset quality has been addressed through falling NPA slippage.

Provision Coverage Ratio of banks has improved to a healthy level of 63.8 per cent.

First Published: Sun, November 25 2018. 10:35 IST
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