RBI removes PCA framework from this PSU bank

  

The Reserve Bank of India on September 29 announced that it has lifted the curbs on Indian Overseas Bank and taken the bank out of the Prompt Corrective Action (PCA) framework, the central bank said in a release.

The board for financial supervision reviewed the performance of Indian Overseas Bank and noted that as per its published results for year ended March 31, 2021, the bank is not in the breach of PCA parameters, RBI said.

Further the bank has provided a written commitment that it would commitment that it would comply with the norms of minimum regulatory capital norms, net NPA and leverage ratio on an ongoing basis, RBI said.

Taking all the above into consideration, it has been decided that Indian Overseas Bank is taken out of the PCA restrictions subject to certain conditions and continuous monitoring, RBI said.

RBI had brought Indian Overseas Bank under the PCA framework in October 2015. The bank had been requesting to the central bank to take it out of the PCA framework.

The bank's MD & CEO, Partha Pratim Sengupta had said post the Q4FY21 results that, “As far as all the PCA ratios are concerned, we have been achieving it in the past quarters also, barring one ratio, which is the leverage ratio. With the ploughing back of the profits and also with the infusion of funds by the government of India, we are very, very comfortable in all the parameters.”

Indian Overseas Bank had received Rs 4,100 crore from the government.

Under the PCA norms, the central bank imposes business restrictions on banks having weak financial metrics and the restrictions are decided on a case to case basis.

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RBI lifts PCA restrictions from UCO Bank

 

State-owned UCO Bank will no longer be subject to strict lending curbs imposed by the Reserve Bank of India (RBI) in May 2017, as the central bank said on Wednesday that the lender has been taken out of the prompt corrective action (PCA) restrictions.

Following UCO Bank’s exit, two banks -- Indian Overseas Bank and Central Bank of India -- remain under PCA. The central bank uses PCA framework to rein in banks that have breached certain regulatory thresholds in bad loans and capital adequacy. PCA entails curbs on high-risk lending, setting aside more money on provisions and restrictions on management salary

UCO Bank, RBI said, has provided a written commitment that it would comply with the norms of minimum regulatory capital, net non-performing asset (NPA) and leverage ratio on an ongoing basis. The Kolkata-based lender has also apprised RBI of the structural and systemic improvements that it has put in place to help in continuing to meet these commitments.

“The performance of the UCO Bank, currently under the prompt corrective action framework of RBI, was reviewed by the Board for Financial Supervision. It was noted that as per its published results for the year ended 31 March 2021, the bank is not in the breach of the PCA parameters," RBI said

As on 31 March, UCO Bank’s net NPA ratio stood at 3.94%, down 151 basis points (bps) from the same period last year. Its total capital adequacy ratio under Basel III was at 13.74%, up 204 bps from Q4 of FY20.

RBI governor Shaktikanta Das said on 6 August that it has been taking banks out of the restrictive framework based on assessments.

“We keep on reviewing that position. Recently, we removed one public sector bank from PCA tag. And as and when required requests are received, we analyse it, if it meets RBI’s regulatory requirements and if in our assessment, we feel confident that it’s a fit case, the RBI will do the needful. So, we have been taking banks out of PCA," said Das.

The PCA framework was introduced in December 2002 as a structured early intervention mechanism along the lines of the Federal Deposit Insurance Corp.’s (FDIC) PCA framework. These regulations were later revised in April 2017. In a speech on 12 October 2018, then RBI deputy governor Viral Acharya had defended the revised PCA norms, calling it the required medicine to prevent further haemorrhaging of bank balance sheets. He had added that in spite of their worse capitalization and stressed assets ratio compared to other banks, PCA banks had credit growth that was as strong as that of other banks up until 2014.

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IDBI Bank likely to exit PCA list; bank claims fulfills all criteria

The Reserve Bank of India (RBI) may soon bring IDBI Bank out of the Prompt Corrective Action (PCA) list. According to the Zee Business exclusive report, IDBI Bank has recently written a letter to RBI and claimed it fulfills all criteria required to come out of the PCA list. The bank has been in this list since May 2017.

Zee Business reporter Anurag Shah said, "IDBI Bank has recently written a letter to the RBI and claimed it fulfills all criteria required to come out of the PCA list." Shah added that IDBI has reported profitability in last two consecutive quarters of Rs 135 crore and Rs 144 crore. Apart from this, its Provisioning Coverage Ratio (PCR) is to the tune of 94 per cent, which is highest among all Indian banks. IDBI's Capital Adequacy Ratio (CAR) is more than 13 per cent. 

Shah said that since bank is fulfilling all criteria to come out of the PCA list, RBI may soon delist it from there.

Reporting about the liquidity status of the IDBI Bank, Anurag Shah said, "IDBI Bank has got approval to sell 27 per cent stake in its insurance arm, IDBI Federal Insurance. Now, it can sell 23 per cent of the IDBI Federal stake to its strong promoter Aegis, while the rest 4 per cent to Federal Bank. This stake sale will also lead to more liquidity in the bank in coming times and that will definitely bring its CAR further down from existing 13 per cent."

On the benefits to be derived when and if RBI releases IDBI Bank from PCA list, Shah told Zee Business Managing Editor Anil Singhvi, "Once RBI brings IDBI Bank out of the PCA list, it will be able to do corporate lending from which it has been barred since May 2017. Apart from this, it will be useful for the government as well because it has already announced that it will sell its entire stake in the bank. If the bank comes out of the PCA list, they will get better valuations of their share."

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This PSB ready to come out of PCA framework: Official

State-owned UCO Bank, which posted net profit for two successive quarters, is ready to come out of the RBI's prompt corrective action (PCA) framework, an official said on Saturday.

In May 2017, the central bank had initiated PCA against the lender due to high non-performing assets and negative return on assets.

"We are ready to approach the RBI to come out of the framework, as the bank posted net profit for two successive quarters," the official said.

He said non-performing assets and capital adequacy norms levels as on June 30 also entitles the bank to move out of the lending constraints' purview.

Net NPA of UCO Bank during the quarter to June was lower at 4.95 per cent, while the capital adequacy ratio stood at 11.65 per cent, he said.

The bank had reported a net profit of Rs 21.46 crore in the first quarter.

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IDBI Bank likely to be out of PCA framework in fourth quarter

LIC-controlled IDBI Bank expected to come out of the Prompt Corrective Action (PCA) framework in the last quarter of the current fiscal with the support of capital infusion and recovery from large IBC cases. According to sources, some of the restrictions with regard to lending by the bank have been eased recently.

With money coming from resolution on Essar Steel and expected flow from resolution of Bhushan Power and Steel and Alok Industries, sources said the bank is likely to be posting profit during the third quarter and the subsequent quarter.

The bank has already come below net NPA threshold of 6 per cent, one of the three parameters for triggering PCA framework. The net NPA of the bank reduced to below 6 per cent in the second quarter ended September 2019.

Recently, Parliament approved Rs 9,300 crore capital infusion in IDBI Bank. The department of financial services got an additional Rs 4,557 crore for infusion into IDBI Bank through recap bonds for their share of 47.11 per cent in IDBI Bank. State-owned LIC, which is the promoter of the debt-ridden lender with 51 per cent stake, will pump in an additional Rs 4,743 crore to improve the bank's capital position.

With this kind of capital infusion coupled with write back from the recoveries from large NPA cases, the bank is expected to come out from the weak bank watch list by the end of the current fiscal, sources said.

The PCA framework kicks in when banks breach any of the three key regulatory trigger points namely capital to risk weighted assets ratio, net non-performing assets (NPA) and return on assets (RoA).

Earlier this month, Finance Minister Nirmala Sitharam said the recapitalisation was done by the government by infusing Rs 21,157 crore into IDBI Bank since 2015 after we came back to power and LIC infused Rs 21,624 crore.

"So both put together have given Rs 42,781 crore to the bank. This has help reduce the net NPAs from a peak of 17.3 per cent in September, 2018 to 5.97 per cent in September, 2019. It has come below RBI's 6 per cent net NPA threshold level," she had said.

Earlier this year, the RBI removed five banks - Bank of India, Bank of Maharashtra, Oriental Bank of Commerce, Allahabad Bank and Corporation Bank - from the PCA framework in two phases after capital support from the government that resulted in improvement in their financial parameters.

The capital infusion helped these lenders meet requisite capital thresholds and reduced their net NPA levels to below 6 per cent.

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RBI puts this Private Bank under PCA

In a move that might put a question mark on the proposed merger of Indiabulls Housing Finance Ltd with Lakshmi Vilas Bank, the Reserve Bank of India has placed the private bank under its prompt corrective action (PCA) framework.

In regulatory filing on Saturday, the bank said that the central bank has taken this action owing to high level of bad loans, insufficient capital adequacy ratio, negative return on assets (RoA) for two consecutive years and high leverage. This action, the bank said, was based on the central bank’s risk-based supervision for FY19.

For FY19, the bank’s net NPA stood at 7.49%, capital adequacy ratio was at 7.72% and its RoA was -2.32%.

Under PCA, banks are mandated to cut lending to corporates and focus on reducing concentration of loans to certain sectors. They are also restricted from opening new branches and paying dividends. Banks currently under PCA are United Bank of India, Indian Overseas Bank, Central Bank of India, IDBI Bank and UCO Bank.

“The Reserve bank of India, vide their letter dated 27 September, 2019 has initiated prompt corrective action for Lakshmi Vilas Bank Ltd on account of high net NP A, insufficient capital to risk-weighted assets ratio (CRAR) and common equity tier-1 (CET 1), negative RoA for two consecutive years and high leverage, based on the on-site inspection under the Risk Based Supervision carried out for the year ended 31 March, 2019," it said.

The regulator has also advised the bank on the restrictions put in place and the actions to be taken by the bank, with progress to be reported on a monthly basis to the RBI.

In August, the bank’s chief executive Parthasarathi Mukherjee quit citing personal reasons.

The RBI PCA framework was introduced in December 2002 as a structured early-intervention mechanism along the lines of the US Federal Deposit Insurance Corp.’s PCA framework. Subsequently, in 2017, the framework was reviewed based on the recommendations of the working group of the Financial Stability and Development Council on Resolution Regimes for Financial Institutions in India and the Financial Sector Legislative Reforms Commission.

Meanwhile, in April, the private sector lender had said that its board approved a merger with mortgage financier Indiabulls Housing Finance Ltd in an all stock deal. The merged entity, will be called Indiabulls Lakshmi Vilas Bank and will be among the top eight private banks in India by size and profitability, it had said.

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This PSU bank very much confident to coming out from PCA

Public sector lender UCO Bank is confident of coming out of the RBI's Prompt Corrective Action (PCA) framework by March next year and hopes to turn profitable by the last quarter of fiscal year 2020, its MD and CEO Atul Kumar Goel said on August 18.

The Reserve Bank of India's PCA framework kicks in when banks breach any of the four key regulatory trigger points, namely capital-to-risk weighted assets ratio, net non-performing assets, return on assets (profitability), and leverage ratio.

"We are growing quarterly, and we have pledged to come out of the PCA framework. I am hopeful and confident we will come out of PCA by March 2020," Goel told reporters on the sidelines of the bank's meeting of branch heads.

"In the quarter ending June 2019, we have shown an operating profit of Rs 1,201 crore. It is the highest in the last fourteen quarters. Loss is only on account of NPA provision. If we recover from NPA, this provision will reduce and we will come into profitability," Goel added.

Speaking on the NPA front, he said, "Our NPA in March 2019 was Rs 29,786 crore. It has reduced to Rs 29,432 crore. Net NPA in March 2019 was Rs 9,650 crore, and it has come down to Rs 8,782 crore in June quarter."

Goel said the bank had set an NPA recovery target of Rs 2,000 crore per quarter, or Rs 8,000 crore per year, in addition to cases referred to National Company Law Tribunal (NCLT).

"In NCLT cases, I am confident, within this quarter, as on date, we should be in a position to recover at least Rs 1,500 crore from three-four big accounts. This will be done in December if not in September," he said.

The Sunday meeting was part of the Union finance ministry's directives to PSU banks to hold consultation and seek suggestions from officers starting from branch level, in order to align banking with national priorities.

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2 more PSU banks out of RBI’s PCA watch; one private bank also finds its way out

The RBI Tuesday lifted lending curbs on two more public sector banks (PSBs), Allahabad Bank and Corporation Bank, by removing them from its weak-bank watch list. Private sector Dhanlaxmi Bank too has been taken out of the Prompt Corrective Action (PCA) Framework. Earlier on January 31, Bank of India, Bank of Maharashtra and Oriental Bank of Commerce were taken out of the PCA Framework. In a statement, the RBI said the Board for Financial Supervision (BFS) reviewed the performance of banks under PCA and noted that the government has infused fresh capital on February 21 into various banks including some of the banks currently under the PCA framework.

Of these banks, Allahabad Bank and Corporation Bank had received Rs 6,896 crore and Rs 9,086 crore, respectively. Capital infusion, the RBI said, has shored up their capital funds and also increased their loan loss provision to ensure that the PCA parameters were complied with. "Accordingly, based on the principles adopted by the BFS in its earlier meeting dated January 31, 2019, it was decided in the meeting held on February 26, 2019 that Allahabad Bank and Corporation Bank be taken out of the PCA Framework subject to certain conditions and continuous monitoring," RBI said.

The gross non-performing assets of Corporation Bank stood at 17.36 per cent of the gross advances at the end of December quarter of this fiscal, up from 15.92 per cent in the same period of previous fiscal. For Allahabad Bank, the gross NPA rose to 17.81 per cent from 14.38 per cent a year ago. RBI further it has also been decided to take Dhanlaxmi Bank out of the PCA Framework, subject to certain conditions and continuous monitoring, as the bank is found to be not breaching any of the Risk Thresholds of the PCA Framework.

Dhanlaxmi Bank's gross non-performing assets (NPAs) rose to 8.11 per cent of the total advances, from 6.96 per cent at the end of the third quarter of 2017-18. RBI also it will continuously monitor the performance of the banks under various parameters," the central bank said. Five public sector banks -- United Bank of India, UCO Bank, Central Bank of India, Indian Overseas Bank and Dena Bank -- are still remain under PCA framework, which imposes lending restrictions and prevents them from expanding, among other curbs.

The PCA framework was one of the contentious issue between the government and the RBI. The government wanted the central bank to align the PCA framework to the global norms. The PCA framework kicks in when banks breach any of the three key regulatory trigger points -- namely capital to risk weighted assets ratio, net non-performing assets (NPA) and return on assets (RoA). Globally, PCA kicks in only when banks slip on a single parameter of capital adequacy ratio, and the government and some of the independent directors of the RBI board, like S Gurumurthy, are in favour of this practice being adopted for the domestic banking sector as well.

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First three PSU Banks which are removed from RBI's PCA list

A Reserve Bank of India (RBI) panel has decided to remove both Bank of India , Bank of Maharashtra and Oriental Bank of Commerce from its prompt corrective action plan (PCA) for state-owned banks that had high levels of bad debt and inadequate capital, a source directly aware of the development told Reuters on Thursday.

The source, who asked not to be named as the discussions are private, said the move follows improvements in the asset quality and capital ratios of both banks.

The RBI’s board for financial supervision took the decision at its meeting on Thursday after reviewing the December quarter performance of all banks on the PCA list, the source said.

In case of Oriental Bank of Commerce, it may also be removed from the list pending the outcome of a technical clarification from the bank, the source added. the net NPA has come down to less than 6 per cent as the government has infused sufficient capital, it said. Hence, it has been decided to remove the restrictions placed on Oriental Bank of Commerce (OBC) under PCA framework, subject to certain conditions and close monitoring, the apex bank added. 

The RBI put 11 state-owned lenders on the PCA list in the past few years. As a result, it barred them from issuing fresh big-ticket loans and expanding their operations, as well as putting their financial performance under close scrutiny.

RBI Press Release:-

Click on right corner of PDF to view large

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One bank may come out of PCA this week, Other two in feb

Bank of India has submitted proofs of improvement in parameters.

Close on the heels of recapitalisation, Bank of India, which received the highest infusion of Rs 10,086 crore last month, has submitted details of its three key parametres—net NPA, return on assets (RoA) and capital to risk weighted assets ratio (CRAR)—to the RBI to consider its performance to take the lender out of the PCA list.

Official sources said Bank of India (BoI) has submitted proofs of improvements in its three Prompt Corrective Action triggers to the Reserve Bank and now this would be placed before the RBI’s Board for Financial Supervision (BFS) meeting, expected in a day or two. In all probability, BoI would be out of the PCA framework this week. Sources also added Bank of Maharashtra (BoM) and Oriental Bank of Commerce (OBC) are also likely to approach the RBI on PCA triggers’ improvements later this week. As things stand, they also have a fair chance of coming out of the PCA framework this fiscal, even as early as February.

Once these three banks come out of PCA, lending by them can be expected to go up by at least 20-25 per cent, said a former bank chairman.

A banking source said BoI shareholders have through the employee stock purchase scheme (ESPS) made a capital infusion of Rs 845 crore, which has been added to the capital base of the bank and that has taken care of all the gaps in its capital shortfalls after counting the recapitalisation by the finance ministry.

Many public sector banks, including Allahabad Bank, Union Bank of India, United Bank of India, Canara Bank and Punjab National Bank, have availed of ESPS to raise funds by issuing shares to their own staff. The government, in March 2017, had allowed public sector banks to offer stock options to their employees, aimed at retaining experienced hands and as a means for raising capital. Syndicate Bank had raised Rs 500 crore through ESPS by allotting 30 crore new shares to its staff. Punjab National Bank mobilised Rs 500 crore through ESPS by issuing 10 crore shares to its employees.

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Is RBI governor Shaktikanta Das to ease PCA norms for Banks?

Hopes of a relaxation in the prompt corrective action (PCA) norms for banks revived after the newly appointed Reserve Bank of India (RBI) governor, Shaktikanta Das, heard out a plea by the heads of seven public sector banks on only his second day in office.

Significantly, the meeting came just a day ahead of an RBI board meeting that is expected to discuss the road map for a subcommittee that will look into the demand for a review of PCA norms. These norms were one of the key bones of contention between RBI led by Urjit Patel and the Union government. Eleven public sector banks are under RBI’s scrutiny for triggering the PCA norms. As a result, they face lending curbs, which, the Union government argued during its ugly face-off with RBI, were squeezing liquidity and thereby impairing an economic recovery.

On Wednesday, Das signalled good optics at his first press conference. While reiterating that the autonomy of RBI would be preserved, Das said he was keen to launch stakeholder conversations. Significantly, his first engagement was with public sector bank chiefs, who have been steadfastly lobbying for a review of PCA norms.

In their first meeting with the new governor on Thursday, the public sector banks also sought easing of the 12 February circular on one-day default, two bankers.

Speaking on condition of anonymity, the first banker said that during the 90-minute meeting, the governor was trying to assess the challenges faced by state-owned banks. “The governor took time to listen to our issues and also sought our views on what could be done regarding those.”

According to this banker, all four deputy governors were present as well, and the meeting was attended by the heads of IDBI Bank, Punjab National Bank, State Bank of India, Union Bank of India, Central Bank of India, Dena Bank and Bank of India.

“We sought easing of PCA norms, considering 11 of the 21 lenders are under the restricted lending framework,” the second banker said, adding that the one-day default norm introduced by RBI was discussed in detail.

RBI had earlier asked banks to report defaults by borrowers with systemic exposure of ₹2,000 crore and above, even if the delay was by one day. The measure, deputy governor N.S. Vishwanathan later explained, was to bring bank loans on a par with default norms in the bond market.

The second banker said that while the governor listened to their problems, he did not indicate a follow-up meeting. Das, this banker said, also sought their opinion on the liquidity crisis among non-banking financial companies (NBFCs). “Representatives of private sector banks were not present at the meeting and maybe he will meet them separately.”

The government and the central bank have joined issue over the relaxation of PCA norms, a special liquidity window for NBFCs, RBI’s 12 February circular on defaulters and transfer of the additional surplus held by it to the government. The issues are expected to be taken up when RBI’s central board meets on Friday.

Das, who assumed charge as the 25th governor of the central bank on 12 December, told reporters on Wednesday that he would meet the heads of Mumbai-based public sector banks to discuss the challenges facing the sector. “I would like to focus on banking sector immediately.”

The RBI PCA framework was introduced in December 2002 as a structured mechanism, along the lines of the US Federal Deposit Insurance Corporation PCA framework. Subsequently, in 2017, the framework was reviewed, based on the recommendations of the working group of the Financial Stability and Development Council on Resolution Regimes for Financial Institutions in India and the Financial Sector Legislative Reforms Commission.

In a speech on 12 October, RBI deputy governor Viral Acharya defended the new PCA rules, calling them the required medicine to prevent further haemorrhaging of bank balance sheets. He added that PCA banks, in spite of their worse capitalization and stressed assets ratio than those of other banks, had credit growth that was as strong as that of other banks till 2014.

However, since the asset quality review exercise and imposition of PCA, the year-on-year growth in advances for PCA banks declined from over 10% in 2014 to below zero by 2016 and remained in the contraction zone since, Acharya had said. Under PCA, banks are mandated to cut lending to firms and focus on reducing concentration of loans to some sectors. They are restricted from opening branches and paying dividends.

Source- Livemint

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Finance Ministry hopes to see 3-4 banks come out of PCA this fiscal

The finance ministry hopes that 3-4 banks would come out of the RBI's Prompt Corrective Action watchlist this fiscal, following the expected modification of guidelines and apparent improvement in bottomline of the public sector banks, sources said.

Of the 21 state-owned banks, 11 are under the PCA framework, which imposes lending and other restrictions on weak lenders. These are 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.

Last week, the RBI in its central board meeting decided the issue of banks under Prompt Corrective Action (PCA) will be examined by Board for Financial Supervision (BFS) of the central bank.

The PCA framework kicks in when banks breach any of the three key regulatory trigger points -- namely capital to risk weighted assets ratio, net non-performing assets (NPA) and return on assets (RoA).

Globally, PCA kicks in only when banks slip on a single parameter of capital adequacy ratio, and the government and some of the independent directors of the RBI board, like S Gurumurthy, are in favour of this practice being adopted for the domestic banking sector as well.

However, the RBI has strongly defended the PCA framework in the past. Last month, its Deputy Governor Viral Acharya had said that any relaxation in the PCA imposed on weak banks should be avoided as it is an essential element of its financial stability framework.

"Imposition of PCA can thus be seen as first, stabilising the banks at risk, and then, undertaking the deeper bank reforms needed for long-term viability of the business model of these banks, he had said.

Sources further said various measures taken by the government, including implementation of Insolvency and Bankruptcy Code (IBC), have yielded good results in terms of reining bad loans and increasing recovery.

So, the review by the BFS of RBI, improving performance of the banks and recovery due to IBC give hope that 3-4 banks could move out of PCA by the end of March 2019, they added.

Banks have made recovery of Rs 36,551 crore during the first quarter, registering a 49 per cent growth over the last fiscal. At the same time, operating profit has risen by 11.5 per cent, while losses fell 73.5 per cent on quarter on quarter basis, he said, adding asset quality has been addressed through falling NPA slippage. Provision Coverage Ratio of banks has improved to a healthy level of 63.8 per cent.

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The real reason behind RBI-government spat over PCA framework

The Reserve Bank of India’s (RBI’s) prompt corrective action (PCA) rulesstate that banks which breach the third threshold for any parameter are ripe candidates for a merger with another bank. Analysts at brokerage firm Jefferies India Pvt. Ltd have identified four banks that breach the third threshold under various parameters based on data from latest September quarter results.

IDBI Bank Ltd, the weakest lender, has breached the third threshold for net bad loans, capital adequacy ratio and common equity Tier-1 ratio. Indian Overseas Bank has breached the third threshold on three parameters as well, while Bank of India and United Bank of India have fallen foul on one count.

The September quarter results also revealed that six banks which are currently not under PCA should be, because of the extensive erosion in their capital notwithstanding government infusion. To be sure, RBI considers annual performance in determining the need for a bank to be put under PCA and therefore the performance for the first half of a fiscal year is not a real indicator.

As an earlier statae, based on the annual March 2018 results, four banks that were not already under PCA had crossed the threshold on asset quality. Latest results show the list has expanded to six banks. Clearly, unless RBI PCA norms are relaxed, more state-run banks are expected to be put under corrective action, rather than the government’s expectation that restrictions are lifted on some.

It becomes clear why the government has been insisting that RBI should revisit its PCA framework. At the last board meeting of the central bank, it was decided that a committee would look into these norms and give recommendation to the board.

Whatever the decision, the outlook on profitability of these banks is far from being sanguine. Analysts expect slippages to rise in the coming two quarters because of the stress from Infrastructure Leasing and Financial Services Ltd. Since most banks are at the bare minimum regulatory requirement in capital, even a mild erosion of capital may send them into PCA.

The impact of 17 banks out of 21 public sector lenders being in PCA would be disastrous for lending. Public sector banks are crucial for giving loans to small businesses and their share is large. For instance, the half- yearly report on the government’s Mudra scheme shows that they contribute to more than half of the lending to small and micro businesses. Mudra is a scheme that offers refinance for loans up to ₹10 lakh given out by lenders.

The lenders are also an important platform through which the government can push its flagship social schemes. Non-banking financial companies that have become an important source of funding for small borrowers are not in a position to meet the demands any more due to the liquidity crunch.

But given the precarious state of some of these banks, the solution clearly is to adequately capitalize them, so that depositors’ funds are shielded.

Source- Livemint

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No respite for Bank of India(BoI), amid RBI vs Govt over PCA

One of the main issues of contention between the government and the Reserve Bank of India (RBI) is the prompt corrective action (PCA) framework for banks. Now, it pays to see how the banks that have come under PCA have performed.

Bank of India is the fifth lender among the 11 under PCA to report September quarter results, and the signs are mixed. The public sector bank reported a quarterly loss of Rs. 1,156.25 crore, massive if one compares with the Bloomberg analysts’ survey, which estimated losses of Rs. 456.30 crore.

The bank had to provide 71% more than it did a year ago, and its core income stagnated owing to the focus on conserving capital instead of lending. The stock of bad loans remained above Rs.60,000 crore and the bad loan ratio barely improved, despite the rather encouraging 10% growth in its domestic loan book.

Bank of India was put under PCA in December 2017, and the performance of its peers shows that the lender has to expect copious bleeding in the first few quarters. After all, the focus under PCA is to heal the balance sheet by removing toxic assets, building insurance on future risks and keeping off risky assets.

The lender has indeed begun ramping up provisions every quarter. Its provision coverage ratio has reached 69% in September from 56% when it entered PCA.

Consequently, Bank of India’s net non-performing assets (NPAs) have come down to 7.64% of its loan book from 10.29%. Its provision coverage ratio for loans under insolvency proceedings is 85%. Slippages are a fraction of what they were in the last two quarters.

But this is where the good part ends.

Bank of India has to provide for mark-to-market hit on its bond portfolio over the next two quarters. It has an exposure of over 10% of its loan book to decaying power producers. The bad loan ratio of its retail assets is a little above 4%, one of the highest among banks.

The lender’s capital adequacy ratio is hardly improving. In fact, the total capital as a percentage of risk-weighted assets is down sharply from the year-ago period. A part of this can be attributed to the bank’s increased provisioning amid shrinking income.

RBI monitors banks under PCA on their net NPAs, capital adequacy ratio, return on assets and leverage ratio. Most lenders, which came under PCA, had alarming net NPA levels, and breached the regulatory minimum on capital. Unless most of these parameters show a marked improvement, the central bank is unlikely to temper down its rules.

Source- Livemint

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Three PSU bank show signs of revival under RBI's PCA watch

The tussle between the Reserve Bank of India (RBI) and the government has reached a level where finding a middle ground looks difficult, if not impossible.

The Centre took the unprecedented call of invoking Section 7 of the RBI Act, 1934 for the first time in history to direct the RBI on issues that are plaguing the Indian economy. One of them is to ease RBI's tight norms on prompt corrective action (PCA) against 12 banks.

RBI and the centre's differences are in relation to the apex bank's handling of weak public sector banks, tight liquidity in the market and resolving bad loans in the power sector. Some reports even claimed that RBI Governor Urjit Patel was considering resigning if the situation worsened.

Till now 12 banks are under the purview of PCA framework. 11 are public sector banks (PSB) and one is a private bank. In 2014, United Bank of India became the first bank to be added to the PCA list. Two more were added in 2015 and eight other under-performing banks in 2017. Recently Allahabad Bank was added to the list in January 2018. Seven out of 12 banks have shown improvement after coming under the RBI's PCA list. In that mainly 3 banks Bank of India(BOI),Corporation bank and OBC bank have seen better to revival from PCA.

Here's how these 12 banks under the PCA list have fared:

Performers :

Corporation Bank

Corporation Bank came under the purview of PCA framework in December, 2017. Corporation Bank has displayed improved performance under the PCA plan. It posted a profit of Rs 84.96 crores in Q1 FY19. Return on assets was at 0.17 per cent, indicating future profit potential. Capital Adequacy Ratio (CAR) as per Basel III norms stood at 8.46 per cent. However it lacked on the non-performing asset front as its NPA saw rise of 0.73 per cent and stood at 11.46 per cent.

Bank of India

PCA framework was implemented on Bank of India in December, 2017. Since then the bank has been able stage a turnaround posting better quarterly results. Profit after tax for June quarter was Rs 95.11 crores, an improvement from the preceding quarter when it posted a loss of Rs 3,969.27 crores. Net NPA stood at 8.45 per cent which has seen a drop of 1.84 per cent since the implementation of PCA. CAR as per Basel III norms stood at 11.43 per cent. Return on assets (ROA) which stood at 0.06 per cent, also displayed growth after being negative for two consecutive quarters (-2.36 in Q4 FY17 and -1.36 in Q3 FY17), indicating increased profitability potential in future.

Allahabad Bank

Allahabad Bank was introduced under the PCA framework in January, 2018. Since then Allahabad bank has shown slight improvement. Its net loss has decreased by 45.6 per cent, net NPA has fallen by 1.81 per cent, and return on assets (ROA) has improved by 44.19 per cent. But, ROA is still negative at -3.22 in the June quarter. CAR as per Basel III norms has reduced to 6.88 per cent.

Oriental Bank of Commerce

The bank was added to the PCA queue in October 2017. Oriental Bank has performed better than most PSBs banks in the PCA framework. It was able to post a profit of Rs 101.74 crores in Q2 FY19 which represents an increase by over 125 per cent since Q1 FY19. Its net NPA stood at just over 10 per cent and CAR as per Basel III norms was at 10.35 per cent. The best part of its performance was that it was able to turnaround its ROA after being in the negative for 7 continuous quarters. As of Q2 FY19, its ROA stood at 0.16 per cent.

Bank of Maharashtra

Bank of Maharashtra came under the PCA purview in June, 2017. Only once in the last six quarters has it been profitable, that too a mere Rs 27 crores in September 2018. CAR as per Basel III norms stood at 9.87 per cent which is a reduction of 1.21 per cent since June 2017. Net NPA witnessed a fall of 1.87 per cent. ROA has made a comeback at 0.07 per cent, which was earlier consistently in negative for straight 10 quarters.

Dhanlaxmi Bank

Dhanlaxmi Bank was introduced under the PCA framework in November 2015. It is the only private sector bank under the purview of RBI's PCA. Since then, its losses have reduced. In FY18 it posted a loss of Rs 24.87 crores which was Rs 241.47 crores in FY15. Its ROA has worsened in FY18 to 0.20 per cent. The bank has adequate CAR of 13.87 per cent as of FY18. The only good thing about Dhanlaxmi Bank is that it has fewer net NPAs as compared to other banks in the PCA list. Its net NPAs stood at only 2.92 per cent as of September 2018.

UCO Bank

PCA framework was implemented on UCO bank in May, 2017 by the RBI. Since then its performance has been more or less the same. Its net loss stood at Rs 633.88 crores in Q1 FY19. Its net NPAs have increased, instead of decreasing, to 12.74 per cent, with CAR at 9.18 per cent. ROA stood weak at -1.1 per cent. ROA of UCO bank has been in the negative since the last 11 quarters.

Under-performers :

Dena Bank

Dena Bank came under the PCA purview in May, 2017. Since then it has consistently underperformed. As per the latest filings available it posted a net loss of Rs 416.7 crores in Q2 FY19.Its net NPAs which stood at 11.7 per cent in Q2 FY19 are also increasing. NPAs have risen by close to 0.5 per cent since it has come under PCA. ROA of Dena Bank is -1.44 per cent. ROA has been negative since the last 3 quarters. CAR stood high a 10.1 per cent for Q2 FY19.

Central Bank of India

Central Bank of India was brought under the PCA framework in June, 2017. It has been a loss making PSU bank since December 2015. As per the June 2018 quarterly result, it posted a loss of Rs 1,522.24 crores. Net NPA is 10.58 per cent and ROA stood at -1.85. ROA has remained negative since the last 11 quarters. Its CAR as per Basel III norms stood at 8.05 per cent.

Indian Overseas Bank

Indian Overseas Bank was added to the PCA queue in August, 2015. It was the second bank that came under the purview of PCA. Since then, its NPAs have been on the higher side. Its net NPA stood tall at 14.34 per cent in Q2 FY19. Its NPAs have been above 13 per cent since the last 10 quarters and it has suffered losses in the last 13 quarters. As of September 2018 its net loss stood at Rs 487.26 crores. ROA, which is a measure of profitability, is also negative for the last 13 quarters and stood at -0.71 per cent in Q2 FY19. CAR as per Basel III norms stood at 9.16 per cent.

United Bank of India

United Bank of India was the first bank to be added to the PCA list in February 2014. Since then it has not been able to improve its performance. Its net NPA which stood at 15.17 per cent in Q2 FY19 is highest among the PSBs. United Bank of India had a negative ROA of 1.08 per cent and CAR of 10.96 per cent in Q1 FY19.

IDBI Bank

RBI added IDBI bank to PCA list in May, 2017. IDBI Bank has probably been the worst in the lot of underperformers. Its net loss has been mounting since December 2017. Net loss for the Q1 FY19 stood at Rs 2,409.89 crores. Non-Performing assets are also consistently rising since the introduction of the PCA framework. IDBI's net NPA stood at a staggering 18.76 per cent. CAR as per Basel III norms stood at 8.18 per cent.

Earlier, in March 2018 Credit Suisse said Punjab National Bank and Andhra Bank could be next additions in the PCA purview.

The PCA framework is implemented if a commercial bank's performance falls below a specified mark. The PCA framework specifies the trigger points or the parameters at which the RBI will intervene with corrective action.

The parameters and their levels, at which corrective action kicks-in are:

1.  Capital to Risk weighted Asset Ratio (CRAR) below 9 per cent.
2.  Net Non-Performing Assets (NPA) above 10 per cent.
3. Return on Assets (RoA) below 0.25 per cent.
4. Leverage ratio

Some of the structured and discretionary actions that could be implemented by the Reserve Bank against banks under PCA are restrictions on distributing dividends, remitting profits and certain deposits. Besides, there are restrictions on the expansion of branch network, and the lenders need to maintain higher provisions, along with caps on management compensation and directors' fees. The corrective action gets tougher if the financials worsen.

Source- Business today

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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.

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Heads of eleven PSBs to appear before parliamentary panel

Heads of 11-state owned banks will apprise a parliamentary committee about the problems of mounting bad loans and increasing fraud cases on Tuesday, sources said. 

They will be appearing before the Standing Committee on Finance, headed by veteran Congress leader M Veerappa Moily, which is looking into 'Banking Sector in India- Issues, Challenges and the Way Forward, including Non- Performing Assets/ Stressed Assets in Banks/Financial Institutions'. 

Top officials of IDBI Bank, UCO Bank, Central Bank of India, Bank of India, Indian Overseas Bank, Dena Bank, Oriental Bank of Commerce, Bank of Maharashtra, United Bank of India, Corporation Bank and Allahabad Bank, will make presentations before the panel and respond to queries on June 26, said sources. 

The banking sector is grappling with rising non-performing assets (NPAs), which touched Rs 8.99 lakh crore or 10.11 per cent of total advances at December-end 2017. 

Of the total gross NPAs, the public sector banks accounted for Rs 7.77 lakh crore. The rising number of frauds has become a serious cause of concern. The number of frauds reported by banks increased from 4,693 in fiscal 2015-16 to 5,904 in 2017-18. The fraud amount at end-March 2018 was Rs 32,361.27 crore, up from Rs 18,698.8 crore at the end of 2015-16. 

Earlier this month, RBI Governor Urjit Patel had replied to host of questions asked by the committee members. Patel, sources had said, was asked about bad loans, bank frauds, cash crunch and other issues. They also said he assured the panel members that steps were being taken to strengthen the banking system. 

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