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RBI, Government Step In To Stem Speculation On Weak Banks

RBI, Government ask citizens not to believe rumors of bank closures.



A customer counts Indian one-hundred rupee banknotes
A customer counts Indian one-hundred rupee banknotes

The Reserve Bank of India (RBI) and the government, on Friday, stepped in to stem rumours swirling around the fate of weak public sector banks. In separate statements, they said that the government has no intention of closing down any banks and added that corrective actions being taken are only intended to strengthen the banks.

RBI, the country’s banking regulator, said that banks being put under the Prompt Corrective Action (PCA) framework does not impact their daily functioning.

The Reserve Bank has clarified that the PCA framework is not intended to constrain normal operations of the banks for the general public, it said in a reiteration of its earlier stance.

Ten government-owned banks are now under the PCA framework. This includes Bank of India, Central Bank of India, IDBI Bank, UCO Bank, Dena Bank, Oriental Bank of Commerce, Indian Overseas Bank, Bank of Maharashtra, United Bank and Corporation Bank.

PCA is undertaken when a lender’s financial indicators weaken below a prescribed level. Subsequent to the PCA, controls are imposed on declaring dividends and on expanding operations. In some cases, restrictions are also placed on lending.

In a separate statement, a senior government official clarified that there is no plan to shut down any bank. Rajeev Kumar, secretary at the Department of Financial Services advised citizens not to believe rumors since there ‘no question’ of closing down any bank.