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11
February 2019
 |
| PCA (The Total Investment & Insurance Solutions) |
The
Finance Ministry is hopeful that all banks will be out of the prompt corrective
action (PCA) list by the end of June with their net NPA level coming in the
range of 6 per cent by then.
The
capital needs of all PCA banks have already been taken care of by the
government through recapitalization in December 2018 and January 2019.
The
government took three banks - Bank of India, Bank of Maharashtra and Oriental
Bank of Commerce - out of the PCA list last month.
Two
others - Dena Bank (part of merger with Vijaya Bank and Bank of Baroda) and
IDBI Bank (through acquisition by LIC) - will be out of the PCA list by
default.
This
leaves just six banks in the list of weak banks that will be under pressure
from the peer group to improve on their NPA improvisation performance. They
could cut down their NPA by June this year, informed sources said.
While
the BoB-Dena Bank-Vijaya Bank merged entity will start operations from April 1,
2019, the LIC-IDBI entity is in the process of starting banking
operations.
LIC had
in January completed the deal with IDBI bank. However, IRDAI Chairman Subhash
Chandra Khuntia had stated that the approval for the LIC-IDBI Bank deal had
been on the condition that the stake will eventually be brought down to 15
percent.
The six
banks which will be eyeing non-PCA status in 2019 will be Allahabad Bank,
United Bank of India, Corporation Bank, UCO Bank, Central Bank of India and
Indian Overseas Bank.
There
is no time deadline given to any bank from the Finance Ministry. Officials say
it should be their own goal to get out of PCA. They need to improve all key
parameters of NPAs, capital savings and non-core assets monetization.
All the
agenda and roadmap have been given to them but they also have to realize that
the sooner they get out of this framework restrictions, they will be able
undertake more expansion and operations, the sources said.
Recently,
the government announced infusion of Rs 28,615 crore into seven public sector
banks (PSBs) through recapitalization bonds which have raised their capital
ratio and improved recovery mechanism, targeting lower net NPA level.
Some
banks are performing well and they are adequately capitalised as per the Basel
norms. So, capitalization and loan recovery steps will facilitate them to come
out of PCA.
The PCA
framework kicks in when banks breach any of the three key regulatory trigger
points: capital to risk weighted assets ratio, net non-performing assets (NPA)
and return on assets (RoA).
Globally,
PCA kicks in 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 favour of this practice being adopted for the
domestic banking sector as well. The
Total Investment & Insurance Solutions
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