Reportedly, the finance ministry is likely to infuse Rs 14,500 crore in the banks that come under the RBI’s prompt corrective action (PCA) framework in the next few days. This will be done to improve the financial health of the selected banks under PCA scheme.
The selected banks are namely the Indian Overseas Bank, Central Bank of India and UCO Bank, that are currently under the PCA framework that puts several restrictions on them, including restrictions on lending, management compensation and directors’ fees
The Rs.14,500 capital infusion will emphatically help these selected banks to come out of the Reserve Bank of India’s enhanced regulatory supervision or PCA framework.
Most of the large state-owned lenders namely State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, Union Bank of India, and Indian Bank have already raised money from various market sources, including share sale on a private placement basis.
It had been reported that for the current financial year, the government had allocated Rs 20,000 crore for capital infusion into the PSBs for meeting the regulatory requirement.
Additionally, the humungous capital infusion activity was initiated by the government to correct the bad loan books of the public owned banks to enhance its credit liquidity for a pro-growth budget formulated by the government.
Parliament had in September approved the Rs 20,000 crore plan of capital infusion in the PSBs as part of the first batch of Supplementary Demands for Grants for 2020-21.
Reportedly, among the 12 public state banks, Punjab & Sind Bank was given Rs 5,500 crore in November last year.
Additionally, Reserve bank of India had placed IDBI Bank under the PCA framework in May 2017. Recently, the LIC controlled IDBI Bank was removed from the RBI’s PCA framework after a gap of nearly four years on improved financial performance.
IDBI was placed under PCA framework after it had breached the RBI’s thresholds for capital adequacy, asset quality (net NPAs was over 13 per cent in March 2017), return on assets and the leverage ratio. The performance of IDBI Bank was again reviewed by the Board for Financial Supervision (BFS) in its meeting held on February 18, 2021.
According to RBI, it was noted that as per the bank’s published results for the quarter ending December 31, 2020, the bank was no longer in breach of the PCA parameters on regulatory capital, net NPA and leverage ratio.
Additionally, the bank had also provided a written commitment that it would comply with the norms of minimum regulatory capital of the RBI. Thus, recently IDBI was exempted from PCA scheme and from tenacious regulations of RBI to function with better state of its loan books.