April 9: The Reserve Bank of India is reportedly gearing up to impose Prompt Corrective Action framework on five public sector banks. This comes in addition to the eleven public sector banks that have already been put under RBI’s radar.
According to a report from the Indian Express, RBI is likely to bring Punjab National Bank, Canara Bank, Union Bank, Andhra Bank and Punjab & Sind Bank under PCA with an aim to check the growing non-performing assets of public sector banks. The banks will be provided with a time of 6-9 months to report improvements so as to come out of the PCA.
Eleven banks have already been put under PCA, and those 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.
The said banks will be restricted from performing various activities including branch expansion, staff recruitment, and increasing size of their loan book depending on the risk thresholds if brought under PCA. In addition to that, the banks will also be directed to disburse loans only to those companies whose borrowing stands above investment grades.
The move is expected to put pressure on credit being made available to companies, especially the small and medium enterprises. The credit availability for MSME segment would also be impacted if more banks are brought under PCA. Large companies might not be impacted due their access to the corporate bond market according to a senior bank official.
Stringent measures were put to action by RBI during previous April after mounting losses were posted by bank over a period of three years. This was followed by the initiation of PCA imposing, starting with IDBI bank in May. Later in November, the central government had allocated capital of Rs 52,311 crore to 11 weak banks apart from infusing Rs 35,828 crore in nine strong banks.