A customer exits a Dena Bank branch in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

State-Owned Banks Hopeful Of Getting Out Of RBI’s Watchlist By 2020

Eleven public sector banks that are under the Reserve Bank of India’s watchlist for mounting bad loans today expressed confidence before a parliamentary committee that these would emerge out of the central bank's prompt corrective action framework by 2020, sources said.

Concerns were also raised about the “stagnation in lending operations” of state-owned banks during the meeting of the Standing Committee on Finance, headed by veteran Congress leader M Veerappa Moily.

Sources said top officials of the 11 banks – IDBI Bank, UCO Bank, Central Bank of India, Bank of India, Indian Overseas Bank, Dena Bank, Oriental Bank of Commerce, Bank of Maharashtra, United Bank of India, Corporation Bank and Allahabad Bank – made presentations before the panel and responded to queries.

Banks under PCA talked about the road map to deal with their non-performing assets and expressed confidence of coming out the framework by 2020, sources said after the meeting.

Also read: Finance Ministry Not Seeking Relaxation Of RBI’s PCA Framework

Under the PCA, banks face restrictions on distributing dividends and remitting profits. The owner may be asked to infuse capital into the lender. Besides, lenders will also be stopped from expanding their branch networks. These would need to maintain higher provisions, and management compensation and directors' fee will be capped.

Banks have to comply with the global norms on capital adequacy (Basel III) and make provision for non-performing assets, which have constrained lending operations. Besides, arrests and spate of cases against current and former bankers have created a scare among the banks hitting the lending operations.

Representatives of the 11 banks were called by the standing committee, which is looking into 'Banking Sector in India- Issues, Challenges and the Way Forward, including Non- Performing Assets/ Stressed Assets in Banks/Financial Institutions'.

The banking sector is grappling with rising NPAs, which touched Rs 8.99 lakh crore or 10.11 percent of total advances at December-end 2017. Of the total gross NPAs, public sector banks accounted for Rs 7.77 lakh crore.

Also read: Good Loans, Bad Loans And Capital: The Many Issues India’s Lenders Are Grappling With

The rising number of frauds has also become a serious cause of concern. The number of frauds reported by banks increased from 4,693 in 2015-16 to 5,904 in 2017-18. The fraud amount at end-March 2018 was Rs 32,361.27 crore, up from Rs 18,698.8 crore at the end of 2015-16.

Meanwhile, the committee also desires that RBI Governor Urjit Patel should follow the customary practice of briefing the panel on the state of economy at least twice a year, sources said.

As per the revised PCA guidelines released last year, if a bank enters 'Risk Threshold 3', it may be a candidate for amalgamation, reconstruction or even be wound up. Among the many metrics that are used to gauge how weak a lender is are capital, net NPAs, RoA and Tier 1 leverage ratio etc.