Mumbai: The Reserve Bank of India on Tuesday lifted lending curbs on two more public sector banks—Allahabad Bank and Corporation Bank—by removing them from its prompt corrective action (PCA) framework. Private sector lender Dhanlaxmi Bank too is no longer a PCA bank. Bank of India, Bank of Maharashtra and Oriental Bank of Commerce were taken out of the PCA framework on 31 January.
The Board for Financial Supervision (BFS) reviewed the performance of the PCA banks and noted that the government has infused fresh capital on 21 February into various banks, including some of the banks currently under the PCA framework, the central bank said in a statement. Of these banks, Allahabad Bank and Corporation Bank had received ₹6,896 crore and ₹9,086 crore, respectively.
The bank recapitalisation, RBI said in the statement, has shored up their capital funds and also increased their loan loss provision to ensure that the PCA parameters were complied with.
"Accordingly, based on the principles adopted by the BFS in its earlier meeting dated January 31, 2019, it was decided in the meeting held on February 26, 2019, that Allahabad Bank and Corporation Bank be taken out of the PCA framework, subject to certain conditions and continuous monitoring," the RBI statement read.
The gross non-performing assets (NPAs) of Corporation Bank stood at 17.36% of the gross advances in the December quarter, up from 15.92% a year ago. Allahabad Bank's gross NPA rose to 17.81% from 14.38% a year ago.
Dhanlaxmi Bank too has been removed from the RBI PCA framework, subject to certain conditions and continuous monitoring, as the bank is found to be not breaching any of the risk thresholds of the PCA framework.
Dhanlaxmi Bank's gross NPAs rose to 8.11% of total advances, from 6.96% at the end of the third quarter of 2017-18.
RBI also it will continuously monitor the performance of the banks under various parameters," the central bank statement read.
Five public sector banks—United Bank of India, UCO Bank, Central Bank of India, Indian Overseas Bank and Dena Bank—are still under the PCA framework.
The RBI PCA framework was one of the contentious issues between the government and the central bank . The government wanted the central bank to align the PCA framework with global norms.
The RBI PCA framework imposes lending restrictions on banks and prevents them from expanding, among other curbs. The mechanism kicks in when banks breach any of the three key regulatory trigger points: capital to risk weighted assets ratio, net non-performing assets (NPA) and return on assets (RoA).
Globally, PCA kicks in only when banks slip on a single parameter of capital adequacy ratio. The union government and some of the independent directors on the RBI board, like S. Gurumurthy, are in favour of this practice being adopted for the Indian banking sector as well.