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The Centre may ask the Reserve Bank of India (RBI) to ease the prompt corrective action (PCA) framework for lenders at its board meeting on October 23. Economic Affairs Secretary Subhash Chandra Garg and Financial Services Secretary Rajiv Kumar are the government’s representative in this meeting, sources told Business Standard.
Finance Minister Arun Jaitley had said last month that demands of public sector banks (PSBs) to relax PCA framework norms will be taken up with the RBI.
The central bank is expected to take a tough stand as its Deputy Governor Viral Acharya had said earlier this month that implementation of PCA had helped in 'stabilising the banks at risk' and any relaxation will be avoided, the report stated.
The main demands of the government will be the alignment of the framework norms with regard to risk weights, provisioning and capital norms, in line with Basel norms. India implemented the Basel-III framework, an international regulation for banks, in 2013, but it will be fully implemented by March next year.
One of the main areas of PCA, which may be relaxed, is the minimum capital requirement. Lenders are expected to maintain a minimum capital to make sure they do not loan all the money they receive and keep it for future needs.
Sources told the paper that the government expects to free up capital (at least Rs 60,000 crore) with this move. This fiscal, the government is supposed to infuse Rs 65,000 crore in PSBs, of which it has already infused Rs 19,100 crore.
Another demand by the government could be to do away with maintaining a capital conservation buffer (CCB) in the current fiscal.
The Centre may also ask RBI to shift its focus on threshold limits on net non-performing assets and instead take the provision coverage ratio (PCR) as a parameter for PCA.
If a bank registers net NPA level of six percent, two consecutive years of negative return on assets or the capital adequacy ratio falls below requirement, then RBI can place it under the PCA framework.
The central bank placed 11 out of the 21 PSBs under PCA in 2017. These are Central Bank of India, IDBI Bank, Indian Overseas Bank, Corporation Bank, Bank of India, United Bank of India, Dena Bank, Bank of Maharashtra, UCO Bank, Oriental Bank of Commerce and Allahabad Bank.
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