NEW DELHI: The government is hoping that four to five banks may come out of the RBI’s prompt corrective action (PCA) framework in the current financial year. PCA imposes lending and expansion curbs on the weak players.
Currently, 11 state-run lenders are under the framework and the government has been battling the regulator to review the norms to ensure that some of the players come out of the mechanism that will help the Centre push lending ahead of next year’s general elections. The improved performance of some of the players is expected to help too.
The government is expected to push liquidity issues, especially for NBFCs, along with central bank governance and more steps for weak banks at RBI’s next board meeting scheduled for December 14.
After much quibbling, the government managed to convince the RBI board to defer the creation of additional capital buffer by banks that will not just help reduce equity requirement by Rs 35,000-40,000 crore but also boost lending. At the end of the September quarter, several of the large players were unable to meet the criteria.
For example, IDBI Bank’s core tier-1 capital and the capital conservation buffer was under 4% against RBI’s 6% prescription, while UCO Bank and Allahabad Bank were seen as borderline cases. In case of other large players, such as Bank of India, core tier-1 capital and the capital buffer added up to 7.5% at the end of the September quarter.
The high level of NPA is seen to be the biggest problem, given that all the 11 state-run lenders were above the 6% threshold specified by the RBI.
At next month’s board meeting, the government is also hoping to get the regulator to do away with return on assets (RoA) as a criteria. Stock exchange filings showed that four of the 11 banks under PCA had positive RoA at the end of the September quarter.