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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.
Tags: Allahabad Bank • Bank of India • Bank of Maharashtra • Central Bank of India • Corporation Bank • Dena Bank • IDBI Bank • Indian Overseas Bank • Oriental Bank of Commerce • Parliamentary Committee on Finance • Prompt Corrective Action • RBI • relaxation of PCA framework • UCO Bank • United Bank of India
The government has decided to issue new series of sovereign gold bonds between January 14 and January 18 at Rs 3,214 per gram and those who subscribe to the bonds online will get a discount of Rs 50 per gram.
Sovereign gold bond scheme
The Sovereign gold bond scheme was introduced by the government in 2015 to reduce the demand for physical gold by shifting a part of the physical bars and coins purchased every year for investment into gold bonds. The features of the scheme are:
- Sovereign gold bonds are issued by the RBI on behalf of the government
- Sovereign gold bonds are denominated in grams of gold and investments can be done in multiples of one gram with a maximum limit of 4 kg per person.
- The Resident Indians including individuals (in his capacity as an individual, or on behalf of minor child, or jointly with any other individual), HUFs, Trusts, Universities and Charitable Institutions are eligible to avail these bonds.
- The tenor of the Bond is of 8 years with an exit option in 5th, 6th and 7th year.
- The investors will also be compensated at a fixed interest rate of 2.50 per cent per annum payable semi-annually on the nominal value.
- Bonds can be used as collateral for loans.
- The interest on Gold Bonds shall be taxable and are exempted from the capital gains tax on redemption.
- Bonds will be tradable on stock exchanges.
The Sovereign gold bonds also aid in maintaining the current account deficit as most of the demand for gold in India is met through imports.