A pedestrian walks past the Reserve Bank of India (RBI) building in Kolkata, India. (Photographer: Brent Lewin/Bloomberg)

Don’t See More Banks Coming Under RBI Corrective Action, Official Says

More banks are unlikely to be brought under the RBI's prompt corrective action framework as the situation pertaining to bad loans is expected to improve in the next couple of quarters, according to a finance ministry official.

Currently, 11 banks including Bank of India, IDBI Bank, Dena Bank, and Allahabad Bank are under the Prompt Corrective Action framework.

As the debt resolution process under bankruptcy law is gaining strength, it is bound to bring down the non-performing assets or bad loans of state-owned banks in the next few quarters, the official said.

Banks have already seen a surge in NPAs in the fourth quarter of 2017-18 and are likely to see a sizeable decline in them in the coming months, the official said.

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

Since there is clear pipeline for NPA resolution, the official said, the ministry does not expect more banks to come under the PCA. Public sector banks which are on the verge of coming under the PCA will improve their financial health within a quarter or two, the official added.

The recent tight prudential norms released by the Reserve Bank of India on Feb. 12 have added to the woes of the lenders, he 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 may even be wound up. Among the many metrics that are used to gauge the weakness of a lender capital, net NPAs, RoA and Tier 1 leverage ratio are a few.

Under PCA, banks face restrictions on distributing dividends and remitting profits and the owner may be asked to infuse capital into the lender. That apart, lenders would also be stopped from expanding their branch networks. It would need to maintain higher provisions and management compensation, in addition to capping directors' fees.

To resolve the stressed assets in the power sector, the finance ministry is expected to hold stakeholders' meeting later this list month.