PSU Banks will come out of PCA by the end of 2018: Government

The government expects the public sector banks to come out of the Prompt Corrective Action (PCA) framework by the end of this year and will provide them adequate capital when required, Department of Financial Services Secretary Rajiv Kumar said on Thursday. He said public sector banks’ operational performance has improved in the April-June quarter, with steep reduction in net losses, increase in recoveries and significant improvement in provision coverage ratio.

As many as 11 out of 21 state-owned banks are currently under the RBI’s Prompt Corrective Action (PCA) framework, which kicks in when banks breach any of the three key regulatory trigger points i.e. capital to risk weighted assets ratio, net non-performing assets (NPA) and Return on Assets (RoA). Depending on the risk thresholds set in PCA rules, the banks are restricted from paying dividend, expanding the number of branches, staff recruitment and increasing the size of their loan book. Two lenders, Dena Bank and Allahabad Bank are facing restrictions on granting fresh loans.

“We are committed to maintain their regulatory capital. I’m sure the banks will come out of PCA this fiscal,” Kumar said at a Canara Bank branch opening event. “NPAs are by and large recognized, provisioning by and large made, the recoveries are on its course through NCLT and outside NCLT (National Company Law Tribunal). The creditor-debtor relationship is under tremendous change. The resolve of government is extremely clear that every stakeholder has to be responsible. Those who are not prudently behaving will have to face the consequences,” he said.

On August 1, the Union Cabinet a deal to allow Life Insurance Corporation (LIC) raise its stake in IDBI Bank to 51 per cent. The government argued that the deal will help IDBI Bank come out of the PCA framework.

In April-June (Q1) 2018, the operating profit of banks has risen by 11.5 per cent while their net losses fell 73.5 per cent over the same quarter last fiscal year, he said, adding that the provision Coverage Ratio of banks have now reached 63.8 per cent from around 56 per cent at the starting of last fiscal year. PSU banks net losses have narrowed to Rs 16,617 crore in April-June 2019, from a record of Rs 62,682 crore in April-June 2018. Their operating profits increased to Rs 36,632 crore in April-June 2019, from a Rs 34,329 crore in April-June 2018.

With regard to the capital requirements of the banks, Kumar said the government will capitalize banks when needed. “Some of it (capital) has already been given, as recoveries is taking place, there is possibility that some banks will not need it. As of now, there no bank is breaching the regulatory norms,” he said.