Following UCO Bank’s exit, two banks -- Indian Overseas Bank and Central Bank of India -- remain under PCA
RBI uses PCA framework to rein in banks that have breached certain regulatory thresholds in bad loans and capital adequacy
State-owned UCO Bank will no longer be subject to strict lending curbs imposed by the Reserve Bank of India (RBI) in May 2017, as the central bank said on Wednesday that the lender has been taken out of the prompt corrective action (PCA) restrictions.
Following UCO Bank’s exit, two banks -- Indian Overseas Bank and Central Bank of India -- remain under PCA. The central bank uses PCA framework to rein in banks that have breached certain regulatory thresholds in bad loans and capital adequacy. PCA entails curbs on high-risk lending, setting aside more money on provisions and restrictions on management salary.
UCO Bank, RBI said, has provided a written commitment that it would comply with the norms of minimum regulatory capital, net non-performing asset (NPA) and leverage ratio on an ongoing basis. The Kolkata-based lender has also apprised RBI of the structural and systemic improvements that it has put in place to help in continuing to meet these commitments.
“The performance of the UCO Bank, currently under the prompt corrective action framework of RBI, was reviewed by the Board for Financial Supervision. It was noted that as per its published results for the year ended 31 March 2021, the bank is not in the breach of the PCA parameters," RBI said.
As on 31 March, UCO Bank’s net NPA ratio stood at 3.94%, down 151 basis points (bps) from the same period last year. Its total capital adequacy ratio under Basel III was at 13.74%, up 204 bps from Q4 of FY20.
RBI governor Shaktikanta Das said on 6 August that it has been taking banks out of the restrictive framework based on assessments.
“We keep on reviewing that position. Recently, we removed one public sector bank from PCA tag. And as and when required requests are received, we analyse it, if it meets RBI’s regulatory requirements and if in our assessment, we feel confident that it’s a fit case, the RBI will do the needful. So, we have been taking banks out of PCA," said Das.
The PCA framework was introduced in December 2002 as a structured early intervention mechanism along the lines of the Federal Deposit Insurance Corp.’s (FDIC) PCA framework. These regulations were later revised in April 2017. In a speech on 12 October 2018, then RBI deputy governor Viral Acharya had defended the revised PCA norms, calling it the required medicine to prevent further haemorrhaging of bank balance sheets. He had added that in spite of their worse capitalization and stressed assets ratio compared to other banks, PCA banks had credit growth that was as strong as that of other banks up until 2014.