The central bank's regulatory decision to remove three lenders from the prompt corrective action (PCA) regime has found a mention in the budget speech.
Railway and Coal Minister Piyush Goyal, standing in for ailing Finance Minister Arun Jaitley, made mention of the Reserve Bank of India (RBI) decision in the earlier part of his speech while presenting the interim budget for the 2019-20 financial year.
Goyal mentioned the RBI action of removing from the prompt corrective action (PCA) framework the banks – Bank of India (BoI), Bank of Maharashtra (Mahabank), and Oriental Bank of Commerce (OBC) – as an instance of the Narendra Modi government's promptness in taking corrective action in case of stressed banks.
The RBI on Thursday removed from the prompt corrective action (PCA) framework the three banks that informed it of structural and systemic improvements they have made to meet the regulatory norms.
The banks have told the RBI they would on an ongoing basis comply with the norms of minimum regulatory capital, net non-performing assets (NPA) and leverage ratio, a media report says.
Their removal from the PCA framework will lift the restrictions on their carrying out normal business, particularly lending.
The banks will be subject to close monitoring by the regulator.
The central bank decision was based on a review of the banks' performance December quarter (Q3).
BoI and Mahabank have met the regulatory norms, including the capital conservation buffer (CCB) and have net non-performing assets (NPAs) of less than 6 per cent as per their third-quarter results, the RBI said in a statement.
Mahabank has welcomed the RBI decision and said it would help the lender pursue a sharper growth trajectory. "We would like to thank the government for the recent capital infusion of Rs 4,498 crore and all our employees for their efforts to help us exit the PCA framework," AS Rajeev, managing director and CEO, said in a statement. "As the bank steps out of the PCA framework, we aim to continue our higher growth trajectory and enhance lending to key sectors such as retail, agriculture and micro, small and medium enterprises."
The RBI took a lenient view of the OBC, though its net NPA was 7.15 per cent. The government's infusion of more capital and the steps that the bank had taken to cut the net NPA to less than 6 per cent prompted the central bank to free OBC from the PCA framework.
The RBI is sticking to the PCA framework norm to ensure the banks' financial health. It helps banks, which are at the risk thresholds in areas such as capital, asset quality (net NPA), and profitability, to take timely corrective steps to restore financial health, a statement says.
The central bank puts a lender under the PCA if the net NPA crosses 6 per cent, or it makes a loss for two consecutive years, or the capital adequacy falls below the 9 per cent regulatory requirement. Lenders in the PCA framework will face restrictions on big-ticket corporate loans, opening new branches, and hiring.
The RBI had placed 12 banks under the PCA because of high levels of stressed assets and a poor financial profile. Apart from the three lenders now released from the PCA framework, the other banks were Mumbai-based IDBI Bank, Central Bank of India, Dena Bank, Corporation Bank, and Indian Overseas Bank, the Kolkata-based Allahabad Bank, United Bank of India and UCO Bank as also Dhanlaxmi Bank, a small South India-based bank, which is the only private sector lender in the PCA framework.