PSBs Current Affairs
Union Government is expecting that public sector banks (PSBs) placed under RBI’s Prompt Corrective Action (PCA) framework will come out of it by the end of this year. As many as 11 out of 21 state-owned banks are currently under PCA framework.
Operational performance of PSBs has improved in April-June 2018 quarter, with steep reduction in net losses, increase in recoveries and significant improvement in provision coverage ratio. Besides, government is also providing PSUs adequate capital when required. Some of capital already has been given, as recoveries is taking place and there is possibility that some banks will not need it. As of now, there no bank is breaching regulatory norms prescribed by RBI.
Prompt corrective action (PCA) framework
PCA framework is supervisory tool of RBI, which involves monitoring of certain performance indicators of banks to check their financial health as early warning exercise and to ensure that banks don’t go bust. Its objective is to facilitate banks to take corrective measures including those prescribed by RBI, in timely manner to restore their financial health. It also provides opportunity to RBI to pay focussed attention on such banks by engaging with management more closely in those areas.
PCA framework is invoked on banks when they breach any of three key regulatory trigger points (or thresholds). They are capital to risk weighted assets ratio, net non-performing assets (NPA) and Return on Assets (RoA). Depending on risk thresholds set in PCA framework, banks are put in two type of restrictions, mandatory and discretionary depending upon their placement in PCA framework levels. The mandatory restrictions are on dividend, branch expansion, directors compensation while discretionary restrictions include curbs on lending and deposit.
Union Finance Ministry is planning to infuse additional capital close to Rs 11,336 crore in 5 more public sector banks (PSBs) by September 2018-end. These five state-owned banks are Punjab National Bank (PNB), Corporation Bank, Andhra Bank, Allahabad Bank and Indian Overseas Bank (IOB).
This round of capital infusion will be done through issuance of recapitalisation bonds and not directly from Budget. This additional capital will help these banks to meet minimum regulatory capital adequacy ratio (CAR) and enable them to make interest payments on certain bonds on time.
Within capital infusion plan of these five PSBs, PNB is expected to get highest amount of Rs 2,816 crore. Corporation Bank is will get Rs 2,555 crore followed by Indian Overseas Bank (Rs 2157 crore), Andhra Bank (Rs 2,019 crore) and Allahabad Bank (Rs 1,790 crore).
This capital infusion by Government will be only for purpose of meeting minimum regulatory requirement and will be not growth capital which will be provided in second half of current fiscal year. The growth capital will only be given to those banks which meet performance targets and modalities set by Finance Ministry as per agreement signed with each bank.
The latest round capital infusion in these 5 PSBs will be part of remaining Rs 65,000 crore out of Rs 2.11 lakh crore capital infusion announced by Union Government for two financial years. In October 2017, Union Government had announced Rs 2.11 lakh crore capital infusion programme, under which PSBs were to get Rs 1.35 lakh crore through recapitalisation bonds, and balance Rs 58,000 crore through raising of capital from market and remaining through budgetary support. The government has already infused Rs 80,000 crore out of Rs 1.35 lakh crore through recapitalisation bonds in PSBs and balance will be done during this financial year (2018-19).