The RBI is going to review the impact of Prompt Corrective Action framework on December 6 and take a call on whether lending curbs can be partially lifted
New Delhi: The Reserve Bank of India (RBI) is soon going to review the impact of one of its key policies — prompt corrective action (PCA) — which was until recently one of the many thorny issues putting a strain on the RBI’s equation with the government. The Central bank is expected to take a call later this week on whether the lending restrictions imposed on weaker banks could be partially lifted.
The RBI’s Board for Financial Supervision (BFS) is set to meet on December 6 to analyse the latest financials of the 11 public sector banks (PSBs) that have been placed under the PCA framework to decide on the matter, according to the committee’s agenda finalised a few days ago. The BFS members are supposed to give their recommendations to the RBI board which will take a final call on the matter.
“About three PCA banks have shown some improvement. The board has to consider how PCA could be phased, what these banks could do in the next six months, and the role that the central government and RBI would play.”
The government and the RBI seem to have found a common ground on the matter and are of the opinion that the PCA framework needs to be reviewed. A source familiar with the development said, “About three PCA banks have shown some improvement. The board has to consider how PCA could be phased, what these banks could do in the next six months, and the role that the central government and RBI would play.”
The PCA framework places curbs on PSBs to prevent them from engaging in risky lending activities, improve their operational efficiency and place the focus on conserving capital. But the prolonged restrictions have stoked fears among bankers that the continuance of the PCA regime could drive away large, creditworthy clients and further weaken the institutions.
The government believes that substantial liquidity is trapped within these banks as they are largely confined to retail, mortgages and small loans, and are unable to participate in credit creation.
The banks placed under the PCA framework include 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.