advertisement
In a significant move, the Reserve Bank of India, on Thursday lifted lending curbs on three out of 11 weak public sector banks (PSBs) as the central bank under new Governor Shaktikanta Das met one of the key demands of the government for boosting credit growth.
Bank of India (BoI), Bank of Maharashtra (BoM) and Oriental Bank of Commerce (OBC) are now out of the Prompt Corrective Action (PCA) Framework, a move that will help expand loan growth to prop up economy.
In case of OBC, the net NPA has come down to less than 6 percent as the government has infused sufficient capital, it said.
Hence, it has been decided to remove the restrictions placed on OBC under PCA framework, subject to certain conditions and close monitoring, the apex bank said, adding the RBI will continuously monitor the performance of these banks under various parameters.
Commenting on on the RBI's decision, Financial Services Secretary Rajiv Kumar said: "Government's sustained 4R's (Recognition, Recapitalization, Resolution, and Reform) strategy for banking transformation delivers again. 3 better-performing PSBs (BoM, BoI & OBC) exit PCA. Banks need to be more responsible, adopt high underwriting & risk management standards to avoid recurrence".
Kumar, who has been credited with undertaking multiple reforms in the banking sector, has been able to provide record amount of capital infusion in the public sector banks (PSBs).
As a result, there has been reversal in the deteriorating bad loan situation and there has been record loan recovery during the current fiscal.
Various initiatives taken by the government have yielded results, with the bad loans of public sector banks declining by over Rs 23,860 crore in the first half of the current fiscal.
At the same time, PSBs have also made a record recovery of Rs 60,726 crore in the first half of the current financial year, which is more than double the amount recovered in the corresponding period last year.
The secretary has recently said capital infusion of over Rs 83,000 crore in the coming few months in PSBs will cement India's position as fastest growing economy in the world.
Both the government and banks are fully committed to the reform process and other lenders are also working towards faster recovery, Kumar had said.
As part of the reform process, there have been slew of decisions taken to boost MSME sector and boost flow of credit to agriculture sector and retail.
The PCA framework was one of the contentious issue between the government and the RBI. The government wanted the central bank to align the PCA framework to the global norms.
Globally, PCA kicks in only when banks slip on a single parameter of capital adequacy ratio, and the government and some of the independent directors of the RBI board, like S Gurumurthy, are in favour of this practice being adopted for the domestic banking sector as well.
On a review of the performance of PSBs currently under the PCA framework, it was noted that a few banks are not in breach of the PCA parameters as per their published results for the quarter ending December 2018, except Return on Assets (RoA), according to the RBI.
Further, it said, the government has also assured that the capital requirements of these banks will be duly factored in while making bank-wise allocations during the current financial year.
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)