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The Reserve Bank of India, on Tuesday, said impairment in the asset quality of the 11 public sector banks (PSBs) under prompt corrective action (PCA) remains high, necessitating sizeable provisioning and deleveraging, thereby constraining not only their capacity to lend but also the desirability of their lending and acceptance of public deposits.
The 11 PSBs that are PCA include Allahabad Bank, Bank of India, Dena Bank, Central Bank of India, Indian Overseas Bank and IDBI Bank. The RBI said profitability and capital position of these banks have seen erosion.
Under PCA, banks face restrictions on distributing dividends, remitting profits and even on accepting certain kinds of deposits. Besides, there are restrictions on the expansion of branch network, and the lenders need to maintain higher provisions, along with caps on management compensation and directors’ fees.
NNPA ratio
An analysis of the net non-performing assets (NNPA) ratios of PCA PSBs vis-a-vis non-PCA PSBs revealed that the NNPA ratio of PSBs under PCA was around 12 per cent in March 2018.
The gap between the CRAR (capital to risk-weighted assets ratio) of PCA PSBs and non-PCA PSBs has widened over the years.
“Although non-PCA PSBs are also loss-making currently, the extent of losses made by PCA PSBs has increased further over the years. Leverage ratio of PCA PSBs has been deteriorating steadily since September 2016,” the RBI said in its Financial Stability Report. In the absence of further capital infusion (that is over and above done till March 31, 2018), CRAR of PCA PSBs may come down from 10.8 per cent in March 2018 to 6.5 per cent by March 2019 under the baseline scenario, whereas for the non-PCA PSBs, the CRAR may decline from 12.0 per cent in March 2018 to 10.6 per cent by March 2019.
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