Some better performing banks likely to be out of PCA: Rajiv Kumar


Rajiv kumar
Kumar revealed that those banks whose performance is not up to the mark must improve their performance

A portion of the public sector banks are probably going to leave the Prompt Corrective Action (PCA) system in next couple of months as a result of enhancement in different parameters, a top finance ministry official said.

Eleven out of the all-out 21 public sector banks are under the central bank’s PCA structure, which forces loaning confinements and keeps them from growing, among different controls.

“Some of the banks out of 11 have shown better performance…If some banks are performing well and they are adequately capitalized as per the Basel norms. Hence, capitalization will facilitate them coming out of PCA. RBI is seized of the matter,” Financial Services Secretary Rajiv Kumar told PTI.

There is a strong case on the basis of performance of some banks to be removed from the     PCA list if not all, he said.

Recently, the government announced infusion of Rs 28,615 crore into seven public sector banks (PSBs) through recapitalization bonds. Out of the seven state-owned banks, the highest amount of Rs 10,086 crore was given to Bank of India, which was followed by Oriental Bank of Commerce, which received 5,500 crores.

Other banks that received capital included Bank of Maharashtra (Rs 4,498 crore), UCO BankNSE -2.00 % (Rs 3,056 crore) and United Bank of India (Rs 2,159 crore)

“They need to improve all parameters of NPAs, capital savings, non-core assets monetization etc. All that agenda have been given to them,” he said.

The recapitalization will enhance the lending capacity of public sector banks and help them come out of the RBI’s watch list. These include Allahabad BankNSE -0.94 %, United Bank of India, Corporation Bank, IDBI BankNSE 0.27 %, UCO Bank, Bank of India, Central Bank of India, Indian Overseas BankNSE -1.75 %, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra.

The PCA framework comes to affect when banks breach any of the three key regulatory trigger points — namely capital to risk-weighted assets ratio, net non-performing assets (NPA) and return on assets (ROA).

Globally, PCA comes to affect only when banks slip on a single parameter of capital adequacy ratio, and the government and some of the independent directors of the RBI board, like S Gurumurthy, are in favor to adopt this practice for the domestic banking sector as well.

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