Finance Ministry Not Seeking Relaxation Of RBI’s PCA Framework
The finance ministry is not seeking any relaxation from RBI in its prompt corrective action framework and has instead asked banks to adopt differentiated business strategy, exit non-core businesses and focus on core competencies, an official said today.
Finance Minister Piyush Goyal last week met heads of 11 public sector banks which have been identified under the PCA to check their deteriorating financial health and promised all possible help to strengthen them.
Banks facing PCA are reeling under mounting non-performing assets. As of December end, Indian banks had bad loans of more than Rs 8 lakh crore of which the major chunk was from state-owned lenders.
Besides, some lenders have been hit by frauds. Punjab National Bank, for instance, has reported a fraud of $2 billion or over Rs 13,400 crore carried out allegedly by diamond jeweller Nirav Modi and his associate Mehul Choksi.
Under the PCA, banks face restrictions on distributing dividends and remitting profits, while the owner may be asked to infuse capital into the lender. Besides, lenders are stopped from expanding their branch networks and need to maintain higher provisions. Management compensation and directors’ fees are also capped.
The finance ministry recently held a meeting with the 11 public sector banks under PCA but has not sought any relaxation in the framework from the regulator, a senior official said. The ministry has asked the banks under PCA to assess their capital needs, adopt differentiated banking and focus on core assets while exiting from the non-core ones, the official added.
Asked if these banks will be given more capital to help them, the official said capital infusion will be linked to performance.
The 11 banks under PCA are Dena Bank, Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce and Bank of Maharashtra.
Also read: What Happens When A Bank Stops Lending?
In October last year the government had announced plans of massive capital infusion of Rs 2.11 lakh crore spread over two financial years -- 2017-18 and 2018-19.