Our Bureau The RBI has decided to take Bank of India (BoI) and Bank of Maharashtra (BoM) out of the Prompt Corrective Action (PCA) framework following improvements in their capital position and asset quality in the December 2018 quarter.

The move will remove the constraints placed on these public sector banks (PSBs) in terms of lending and undertaking branch expansion.

The RBI has also decided to remove the restrictions placed on Oriental Bank of Commerce (OBC) subject to certain conditions and close monitoring.

PCA involves intervention by the banking regulator so that a ‘weak’ bank takes corrective measures to restore its financial health. It is imposed on banks whose capital, asset quality and/or profitability do not meet pre-specified thresholds.

With BoI and BoM out of it, eight of the 20 PSBs are left under the regulator’s PCA watch.

IDBI Bank and Dhanlaxmi Bank are the only non-PSBs under the PCA framework.

According to the central bank, BoI and BoM provided a written commitment that they would comply with the norms of minimum regulatory capital, net non-performing assets and leverage ratio on an ongoing basis.

They have also apprised it of structural and systemic improvements put in place to help meet these commitments.

Further, the government has given an assurance that the capital requirements of these banks would be duly factored in while making bank-wise allocations during the current financial year.

Govt pressure on RBI

This move comes in the backdrop of independent director S Gurumurthy and the government nominees on the RBI’s central board strongly batting to bring PSBs out of the PCA framework so they could step up lending and support economic growth. The RBI was against any dilution in the framework.

In an October 2018 speech, Viral Acharya, RBI Deputy Governor, underscored that the provision coverage ratio numbers suggest that the loss-absorption capacity of PCA banks is on the mend, but that there is some distance to go in reaching healthy levels.

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