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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