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Relaxation of Norms under PCA Framework

It is said that the finance ministry and the Reserve Bank of India are working on providing some relaxation on the prompt corrective action (PCA) framework for stressed banks.

Prompt Corrective Action (PCA) Framework

Prompt Corrective Action (PCA) framework has been issued by the RBI to maintain the sound financial health of banks. The RBI will initiate certain structured and discretionary actions for the bank under the PCA. The PCA framework kicks in when the Banks breach any of the three key regulatory trigger points

  • Capital to risk-weighted assets ratio
  • Net non-performing assets
  • Return on assets.

The PCA framework is aimed at nudging the banks to take corrective measures in a timely manner, in order to restore their financial health.

Eleven Banks which are under PCA framework are Dena Bank, Central Bank of India, Bank of Maharashtra, UCO Bank, IDBI Bank, Oriental Bank of Commerce, Indian Overseas Bank, Corporation Bank, Bank of India, Allahabad Bank and United Bank of India.

Why there is a proposal for providing relaxation now?

After several measures taken for capital infusion in the Public Sector Banks, the Banks are well-capitalised. Even though the banks have not only shown improvement on recoveries but have further de-risked their portfolios. The relaxation would aid banks in exiting the PCA framework.

The Parliamentary Committee on Finance had observed that “It is not clear as to how these banks will turn around their operations with the existing curbs on lending and even deposit-taking in the case of some. This could trigger a vicious cycle in the banking sector and the economy at large”. The committee had recommended reviewing the PCA framework.

Month: Categories: Business, Economy & Banking Current AffairsUPSC Current Affairs - 2019

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GoM on GST revenue shortfall faced by states

The GST Council has decided to set up a seven-member committee to look into revenue shortfall being faced by the states after the GST roll-out, and suggest steps for augmenting collections.

The committee would be headed by Deputy Chief Minister and Finance Minister of Bihar Sushil Modi. Other members of the committee include Punjab Finance Minister Manpreet Singh Badal, Kerala Finance Minister Thomas Isaac, Karnataka Rural Development Minister Krishna Byre Gowda, Odisha Finance Minister Shashi Bhushan Behera, Haryana Taxation Minister Capt Abhimanyu and Goa Panchayat Minister Mauvin Godinho.

Terms of Reference of the Committee

The committee headed by Sushil Modi will look into the following aspects:

  • Analyse reasons for the shortfall in revenue collections by the states since July 2017.
  • Undertake data analysis using econometric and statistical tools and suggest suitable measures and policy interventions for course correction for revenue augmentation, particularly for the states suffering high revenue shortfall.
  • Look into account trends of revenue collection before and after implementation of goods and services tax.
  • Structural patterns of major sectors of the economy impacting revenue collection, including the services sector.
  • Identify reasons for deviation in revenue collection trends, compare it with original assumptions worked out at the time of design and implementation of GST.
  • Only Andhra Pradesh and five northeastern states — Mizoram, Andhra Pradesh, Manipur, Sikkim and Nagaland — have recorded revenue increase post the GST roll out.

Revenue Trends under GST Regime

The GST revenue data shows the following trends:

  • A large number of States including Punjab, Himachal Pradesh, Chattisgarh, Uttarakhand, Jammu and Kashmir, Odisha, Goa, Bihar, Gujarat and Delhi are facing revenue shortfall following the implementation of goods and services tax.
  • The revenue shortfall experienced by these states was in the range of 14-37 per cent.
  • Among the Union Territories, Puducherry is facing a maximum shortfall of 43 per cent.

The Goods and Services (State compensation for loss of revenue) act provides for compensation to the states for loss of revenue arising on the account of implementation of the Goods and Services Tax for a period of 5 Years and the projected revenue nominal growth rate for a state during the transition period shall be 14% per annum.

Month: Categories: Business, Economy & Banking Current AffairsUPSC Current Affairs - 2019

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