Capital to risk-weighted assets ratio Current Affairs - 2020
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The Reserve Bank of India (RBI) has removed three banks, Dhanlaxmi Bank, Allahabad Bank and Corporation Bank from the PCA framework by moving them out of its weak-bank watchlist.
Basis for the decision of RBI
- The government has infused fresh capital into various banks including some of the banks currently under the PCA framework. As part of the capital infusion, Corporation Bank had received Rs 9086 cr and Allahabad Bank had received 6896 cr.
- Capital Infusion to both of these banks has shored up their capital funds and also increased their loan loss provision to ensure that the PCA parameters were complied with.
- Dhanlaxmi Bank was taken out of the PCA framework, subject to certain conditions and it would be under continuous monitoring, as the bank is found to be not breaching any of the Risk Thresholds of the PCA framework.
Earlier in the year, the RBI had removed the Bank of India (BoI), Bank of Maharashtra (BoM) and Oriental Bank of Commerce (OBC) from the PCA framework. With the removal of Allahabad Bank and Corporation Bank from the list, five PSBs which includes United Bank of India, UCO Bank, Central Bank of India, Indian Overseas Bank and Dena Bank remain under the PCA framework.
PCA: Bone of Contention
The PCA framework had become a bone of contention between the government and the RBI. In India, PCA kicks in when banks breach any of the three key regulatory trigger points namely capital to risk-weighted assets ratio, net non-performing assets (NPA) and return on assets (RoA) whereas globally PCA kicks in only when banks slip on a single parameter of capital adequacy ratio.
The government and independent directors of the RBI board, like S Gurumurthy, are in favour of this practice being adopted for the domestic banking sector as well.
Tags: Allahabad Bank • Capital to risk-weighted assets ratio • Central Bank of India • Corporation Bank • Dena Bank
The Reserve Bank of India (RBI) has lifted the Prompt Corrective Action (PCA) framework operational curbs on Bank of India (BoI), Bank of Maharashtra (BoM) and Oriental Bank of Commerce (OBC).
These public sector banks are out of the prompt corrective action (PCA) framework. This will aid in making marked improvements in the capital positions and asset quality.
The PCA restrictions were lifted after these banks provided a written commitment that they would comply with the norms of minimum regulatory capital, net NPAs (Non-performing Assets) and leverage ratio on an ongoing basis. These Banks have also apprised RBI of the structural and systemic improvements they have put in place.
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 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.