June 11: Six state run banks, including Punjab National Bank, Union Bank of India and Syndicate Bank, are on the verge of entering Reserve Bank of India’s prompt corrective action (PCA) framework. There are reports that this might reduce the possibility of the Finance Ministry’s plans to sell the good loans of the weak banks to stronger lenders coming to completion.
The number of state-supervised banks will be brought under the PCA framework, if the Reserve Bank of India imposes restrictions on these lenders by next month. In May, the central bank had imposed PCA restrictions on Allahabad Bank, which comprised the directive to reduce exposure to unrated and high risk advances. Apart from this Dena Bank was asked to keep away from taking fresh exposures.
As per reports, the banking overseer may give some relief if the lenders are not delayed on all indicators. The plan to sell healthy loans might work if the lenders do not come under PCA. At discussions held with the government and Reserve Ban, the banks have made it clear that they will be able to improve in the upcoming one or two quarters. It is also being reported that RBI imposing restrictions under PCA will make it hard for the banks to recover soon.
Another official has been quoted as saying that the notion of establishing a group of banks to take over good loans of banks under PCA will fail if even three banks are put under PCA. It will be of no use to take over these loans if there are lending restrictions.
Various curbs including stopping branch expansion, halting dividend payments, limiting loan limits, audits and restructuring if warranted comes under PCA. Currently, state-run banks like 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 are placed under PCA.
Piyush Goyal, acting finance minister had held a meeting with the heads of public sector banks in the west and south last week. Post the meeting, Goyal had concluded that P S Jayakumar, Chief of Bank of Baroda will come up with a plan regarding the state-supervised banks taking over good loans of banks under PCA. Goyal was in charge of the financial portfolio till Arun JAitley’s return from medical leave.
The Government had established a committee headed by Sunil Mehta, executive chairman of Punjab National Bank as the committee chairman. The committee had to inspect the establishment of an asset reconstruction company for faster resolution of stressed assets which involves multiple state owned lenders.