The banks which are under the prompt corrective action (PCA) framework have been asked to provide an estimate of the quantum of provision for bad loans required for the January-March quarter and the shortfall in capital due to the provisioning, to the banking regulator before a decision can be taken to remove restrictions on some banks.
The Board for Financial Supervision (BFS) of Reserve Bank of India (RBI) — which has been entrusted by the central bank board to review the performance of the banks under PCA — met last week, when the decision has been taken.
BFS is chaired by the RBI Governor and includes the four deputy governors and a few other board members.
“The financial results of the third quarter are coming out. Now, the banks have been asked to submit estimate for the fourth quarter, how much provision they require and due to which if there is any shortfall in capital. If there is a shortfall in capital, the government can step in to meet the capital requirement which could help some of the banks out of the PCA framework,” said a person privy to the discussion. Most public sector banks, including the ones under PCA framework, are expected to announce their October-December earnings over the next 15-30 days.
Restrictions under prompt corrective action are imposed when a bank breaches certain risk thresholds with respect to capital adequacy ratio, net non-performing asset ratio, return of assets and leverage ratio.
In December, the government decided to infuse ₹28,615 crore into public sector banks to support them with regulatory capital. One of the biggest beneficiaries of the exercise was Bank of India — also under the PCA framework — which received ₹10,086 crore.
Share in loan market
Under the PCA framework, there are 11 public sector banks which have a 20% share in the loan market. Some of the banks that could see the restrictions removed are Bank of India, Bank of Maharashtra, and Corporation Bank.
Since the government was keen to see at least some banks under PCA come out of the curbs so that lending can get a boost, the November 19 board meeting of RBI decided the matter would be examined by the BFS.
