More banks might enter PCA framework

More banks might enter PCA framework

New Delhi: In order to fight the bad loans, the Reserve Bank of India might include six more state-run banks in prompt corrective action (PCA) framework. If the sources are to be believed then Punjab National Bank, Union Bank of India and Syndicate Bank are likely to be at risk of entering PCA framework.

However, if these banks enter the PCA framework, then there are less chances that finance ministry will sell the good loans of these banks to bigger and strong lenders.

Notably, with the inclusion of these banks in PCA framework, in around a month, the number of state-run banks in PCA framework will reach 17 as already 11 state-run banks are in it. PCA restrictions were imposed on Allahabad Bank by the RBI with a directive to reduce exposure to unrated and high-risk advances. Apart from Allahabad Bank, Dena Bank was also given instructions to avoid taking fresh exposures.

There is also a buzz that these banks might get some relief from the banking regulator as they are not lagging behind on all indicators.

According to a senior official the discussions are going on between banks and the government as well as the RBI has also said that they will be able to recover in the next one or two quarters. He also said that if PCA restrictions are imposed by the central bank on these weak lenders then it would be difficult for them to turn around quickly hence these banks might get some breathing space from RBI.

As of now, Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra are the state-run banks under the PCA restrictions.

As per the PCA framework, the banks under the restrictions can’t expand their branches, have to stop dividend payments, put a limit on loan limits, audits and restructuring if warranted.

An official ruled out the idea of setting up of a consortium of banks that will take over good loans of banks under PCA if the restrictions are imposed on these three banks. He said that there is no sense for these banks to take over these loans if there are lending restrictions.

Piyush Goyal, acting finance minister, as Arun Jaitley is on medical leave, met the heads of public sector banks in the west and south. After the meeting, he told the media that PS Jayakumar, Bank of Baroda’s chief will formulate a strategy regarding state-owned banks taking over good loans of banks under PCA.

A committee has also been set up under the chairmanship of Sunil Mehta, non-executive chairman of Punjab National Bank that would examine the setting up of an asset reconstruction company so as to resolve the problem of bad loans.