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Another three Government banks to be out of PCA soon

Another three Government banks to be out of PCA soon

Mangalore Today News Network

New Delhi, Feb 22, 2019 : The list of public sector banks exiting the RBI’s Prompt Corrective Action framework could increase to six as the government expects Corporation Bank, Allahabad Bank and Dena Bank to soon come out of the PCA net, IndianExpress reported.



This would lead to six out of eleven banks being out of the PCA. While government expects Corporation Bank, Allahabad Bank to exit PCA post equity infusion announced Wednesday, the Centre is likely to provide fresh funds to the amalgamated entity of Bank of Baroda, Vijaya Bank and Dena Bank, sources said. As the combined entity through merger of these three banks will have strong financial metrics, the merger of Dena Bank with Bank of Baroda will ensure its exit from PCA as well. The Centre is left with around Rs 5,000 crore of funds out of equity commitment for state-owned banks in the current fiscal. A portion out of this amount can be pumped in the merged entity of Bank of Baroda, Vijaya Bank and Dena Bank, sources said.

The Centre Wednesday announced equity infusion of Rs 48,239 crore in 12 public sector banks in this fiscal to help them maintain regulatory capital requirements and to provide growth capital to better performing banks. The highest amount was of Rs 9,086 crore is being given to Corporation Bank, followed by Rs 6,896 crore to Allahabad Bank - the two better-performing banks currently under the PCA supervision of the RBI

With Bank of India, Bank of Maharashtra and Oriental Bank of Commerce recently coming out of the PCA, exit of another three banks is expected to step up lending. Dena Bank and Allahabad Bank coming out of PCA is also significant since these two lenders are facing restrictions on granting fresh loans. The PCA framework kicks in when banks breach any of the three key regulatory trigger points i.e. capital to risk weighted assets ratio, Net NPA and Return on Assets (RoA). While revising its PCA framework in 2017, the RBI increased the number of Net NPA ratio thresholds from two (10% and 15%) to three (6%, 9% and 12%), while reducing the Net NPA levels at which the PCA kicked in. Negative RoA was introduced as an additional criteria for invoking the PCA.

Equity infusion will take capital adequacy ratio of both Corporation Bank and Allahabad Bank above 9 per cent and net Non Performing Assets below 6 per cent-leading to their exit from the PCA. PCA banks face several restrictions including payment of pidend, expansion in number of branches, staff recruitment and increasing the size of their loan book.

The government has also given Bank of India and Bank of Maharashtra equity of Rs 4,638 crore and Rs 205 crore, respectively, in order to ensure that these banks remain above the PCA trigger points. The other four banks under the PCA - Central Bank of India, United Bank, UCO Bank and Indian Overseas Bank-are being provided Rs 12,535 crore of capital. Last December, the government had announced fund infusion of Rs 83,000 crore in public sector banks by March-end. As against planned capital infusion of Rs 65,000 crore in the current financial year, equity infusion amount was raised to Rs 1.06 lakh crore.

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