IDBI Bank Current Affairs - 2019

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Capital Infusion of Rs. 48,239 Crore into 12 State-Run Banks

The government has approved the capital infusion of Rs. 48,239 Crore into 12 State-Run Banks. The capital inclusion has been undertaken to ensure the lenders are able to maintain regulatory capital requirement and step up lending and boost overall growth.

With this latest capital infusion, the government has now the government has now provided Rs 1,00,958 crore out of the Rs 1.06-lakh-crore bank recapitalisation plan. The remaining Rs. 5,000 crore capital infusion would be used as a buffer for any contingency or growth capital for Bank of Baroda which is in the process of merging Dena Bank and Vijaya Bank with itself.

How the capital infusion will benefit these PSBs?

RBI has lifted the curbs under the Prompt Corrective Action framework on Bank of India (BoI), Bank of Maharashtra (BoM) and Oriental Bank of Commerce (OBC) in early 2019. Eight other PSBs — Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Central Bank of India, Indian Overseas Bank and Dena Bank are still under PCA. PCA imposes curbs on expansion activities, among a number of other restrictions to help them get back to fiscal health.

The capital infusion has been undertaken to ensure that state-run lenders, which have emerged out of the PCA, remain above the triggers and help others such as Indian Overseas Bank, Central Bank, United Bank and UCO Bank meet minimum regulatory capital requirements.

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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 & BankingUPSC

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