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18 April
2017
 |
R.B.I (The Total Investment & Insurance
Solutions)
The
invocation of the new Prompt Corrective Action (PCA) framework announced by the
Reserve Bank of India (RBI) recently would put a curb on many activities of
government-owned banks, said investment banking firm Jefferies. The Total Investment & Insurance
Solutions
In a report
issued on Tuesday, Jefferies said the invocation of PCA threshold would require
these banks to act on many fronts.
"Some
of the actions may require them to stop paying dividends and cease branch
expansion. In addition, they may be required to raise capital and increase
provisioning," Jefferies added.
Last week,
the RBI came out with revised PCA framework whereby capital, asset quality and
profitability would be the basis on which the banks would be monitored and has
defined three kinds of risk thresholds.
The RBI said
mandatory action that would be taken when a bank breaches the risk threshold
includes restriction on dividend payment/remittance of profits, restriction on
branch expansion, higher provisions, restriction on management compensation and
director's fees.
The RBI has
classified the risk thresholds into three categories and the PCA depends on the
type of risk threshold that was breached. The Total Investment & Insurance Solutions
The RBI said
the breach of 'Risk Threshold 3' of CET1 (common equity tier 1) by a bank would
identify a bank as a likely candidate for resolution through tools like
amalgamation, reconstruction, winding up and others. The Total Investment & Insurance Solutions
"The
PCA framework would apply without exception to all banks operating in India
including small banks and foreign banks operating through branches or
subsidiaries based on breach of risk thresholds of identified indicators,"
the RBI said.
According to
Jefferies, the five associate banks of State Bank of India (SBI) were breaching
one or more PCA thresholds. The Total
Investment & Insurance Solutions
Post merger
of the five banks with SBI, the consolidated bank should not be breaching any
of the thresholds, Jefferies said. The
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According to
Jefferies, a total 21 (including the five associate banks of SBI) out of 27
government-owned banks have breached asset-quality trigger.
In fact two
of the state owned banks have breached 'threshold 3' of asset quality, with
their net non-performing asset (NNPA) above 12 per cent.
Continued
losses in the last two years meant eight of the state owned banks are likely to
breach 'threshold 1' of profitability. The
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Jefferies
said based on the data up to Q3FY17, the private sector banks are well above
the thresholds of the individual areas.The
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