Finance Ministry Expects Remaining Four Banks To Be Out Of PCA Framework This Fiscal
Finance Minister Nirmala Sitharaman during a press conference to announce merger of various public sector banks. (Source: PTI)

Finance Ministry Expects Remaining Four Banks To Be Out Of PCA Framework This Fiscal

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The finance ministry expects the remaining four public sector lenders to be out of the Reserve Bank of India’s prompt corrective action framework with the recent round of capital infusion.

Currently, Indian Overseas Bank, Central Bank of India, UCO Bank and United Bank of India are under this framework which puts several restrictions on them, including on lending, management compensation and directors' fees.

The government on Friday announced capital infusion of Rs 10,800 crore into these four banks, with IOB getting the highest amount of Rs 3,800 crore.

Central Bank of India will get Rs 3,300 crore, UCO Bank Rs 2,100 crore and United Bank of India Rs 1,600 crore.

"This regulatory capital is so much that it will enable four banks to come out of PCA framework this year," Finance Secretary Rajiv Kumar told PTI.

"United Bank would come out of because of merger, while government has given enough capital to IOB, Central Bank of India and UCO Bank which will help them to come out of the PCA framework," he said.

Last week, the government announced consolidation of 10 public sector banks into four mega state-owned lenders, including amalgamation of Oriental Bank of Commerce and United Bank of India with Punjab National Bank.

Also read: Why PSU Bank Mergers Won’t Solve Indian Economy’s Most Pressing Problem 

Earlier this year, RBI removed five banks -- Bank of India, Bank of Maharashtra, Oriental Bank of Commerce, Allahabad Bank and Corporation Bank -- from the PCA framework in two phases after capital support from the government that resulted in improvement in their financial parameters.

The capital infusion helped these lenders meet requisite capital thresholds and reduced their net non-performing asset levels to below 6 percent.

Out of 11 banks put under the PCA framework last year, Dena Bank ceased to exist as a separate entity after its merger with Bank of Baroda in April, while IDBI Bank has been acquired by LIC.

Regarding the time-frame for the remaining banks to come out of the PCA framework, the Finance Secretary said the decision has to be taken by the RBI based on its assessment.

Following a host of initiatives taken by the finance ministry, the banking sector witnessed a reversal in the deteriorating bad loan situation with reduction of NPAs by 1.06 lakh crore and record loan recovery of Rs 1.21 lakh crore in the last fiscal.

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