Health of banks being restored under PCA regime: RBI official

There are emerging signs that the performance of banks under prompt corrective action (PCA) is slowly but steadily being restored, according to the Reserve Bank of India Deputy Governor, Viral Acharya.

PCA is a structured early intervention and resolution framework by the RBI for banks that become under-capitalised due to poor asset quality, or vulnerable due to loss of profitability.

Specifically referring to the 11 public sector banks that are under PCA, Acharya observed that the declining trend of CRAR (capital to risk-weighted assets ratio) and Tier-1 (core) capital ratio for PCA banks that started in 2011 has been arrested, and the ratio has been maintained steady since 2014 at or above internationally-prescribed levels.

At present, there are 12 banks, 11 in the public sector and one in the private sector, under the Reserve Bank’s Revised PCA Framework, with PCA having been imposed on them between February 2014 and January 2018.

Emphasising that the tide is turning for the PCA banks, Acharya said recapitalisation (by the government) has been an important contributor to financial stability of the 11 PCA banks and of the rest of the banking system they deal with.

At a lecture at Indian Institute of Technology, Bombay, the Deputy Governor, said: “Given the recapitalisation and prevention of further hemorrhaging, the provision coverage ratio (PCR) of PCA banks which had fallen off relative to that of other banks starting 2011 and reached below 40 per cent during 2012-2016, has now recovered to that of non-PCA PSBs.”

The recovered level of PCR remains at present at around 50 per cent, which is 10 per cent below that of private banks, and away from the desirable 70 per cent.