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RBI Removes Three More Banks From PCA Framework List

HARSH RANJAN | 0
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| February 27 , 2019 , 14:09 IST

The Reserve Bank of India at the Board for Financial Supervision on Tuesday removed Allahabad Bank, Corporation Bank and Dhanlaxmi Bank Ltd. from the Prompt Corrective Action framework’s list. 

On Tuesday, the regulator said that three lenders on whom lending restrictions are being lifted have shown an improvement in performance and have undertaken structural reforms to improve their functioning.

Since January, the regulator has released six banks, including five public sector lenders, from the corrective action framework intended to strengthen weak banks.

Half of India’s government-owned lenders were under this new framework, which was tightened in April 2017 under former RBI governor Urjit Patel.

The issue had become one of the many flash points that led to Patel’s exit and the appointment of Shaktikanta Das as Governor.

In the case of public sector lenders, Allahabad Bank and Corporation Bank, the banking regulator said that recent capital infusions by the government will help bring down their net non-performing asset ratio to below the threshold set under the PCA framework.

The capital infusion will also help push up capital adequacy ratio, which is another trigger for the imposition of lending restrictions.

As of the end of the December 2018 quarter, the net NPA and capital adequacy levels of these banks were in breach of the thresholds.

However, earlier this month, the government said that Allahabad Bank will receive Rs 6,896 crore from the government, while Corporation Bank will get Rs 9,086 crore.

“The banks also apprised RBI of the structural and systemic improvements put in place to maintain these numbers,” the regulator said in its statement.

Even though these banks are out of the PCA, it doesn’t necessarily mean that they have the ability to grow, according to Saswata Guha, director at Fitch Ratings India.

“It appears that the PCA framework is currently looking at only one parameter, which is capital, for the banks under PCA. Operationally, their performances have been weak and will likely remain so in the foreseeable future,” Guha said.

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The RBI said that Dhanlaxmi Bank, which was the only private sector lender under the regulator’s PCA framework, was allowed to exit because it was no longer in breach of any of the risk thresholds within the framework.

For the old generation private sector lender, the net NPA ratio at the end of the third quarter was at 2.93 per cent, while the Tier-1 capital ratio was at 10.26 per cent.

The PCA framework is designed to keep a check on the asset quality of weak banks by preventing them from lending until they improve financial parameters like capital adequacy and the ratio of bad loans to total loans.