The finance ministry has asked 12 listed public sector banks currently under the RBI's prompt corrective action (PCA) to apprise it on reform measures they have undertaken. This is with regard to high level of non-performing assets (NPAs), low capital level, low return on assets and poor asset quality.
The PCA mechanism aims to alert banks whose operational and financial metrics are weak. The PCA framework flags of four risk thresholds based on gross non-performing assets, net NPAs, capital adequacy ratio and return on assets. Once under the framework, restrictions are placed on dividends, branch expansion and in some cases lending based on discretion of the RBI.
The finance ministry would hold a meeting with the heads of these banks which essentially would be to take stock of reforms they have undertaken to cut down on NPAs, boost capital and the steps they have taken to get out of non-core activities, said official sources .
Under PCA, banks are not allowed to renew or access costly deposits or take steps to increase their fee-based income. Banks will also have to launch a special drive to reduce the stock of NPAs and contain generation of fresh NPAs. They will also not be allowed to enter into new lines of business. The RBI will also impose restrictions on the bank on borrowings from interbank market.
The central bank will conduct further accounts checking of these banks to take a call on these banks' fate. The list figures some big names including Bank of India and some weak banks which have been under the PCA for a while. Allahabad Bank, Bank of India, Central Bank of India, IDBI Bank, UCO Bank, Dena Bank, Oriental Bank of Commerce, Indian Overseas Bank, Bank of Maharashtra and Corporation Bank are some of the banks under PCA.
IDBI Bank tops the list with 24.98 per cent of gross NPA ratio as on September quarter at Rs 51,368 crore. Indian Overseas Bank has 22.73 per cent as gross NPA ratio at Rs 34,709 crore, Uco Bank has an NPA ratio of 19.74 per cent at Rs 24,435 crore.
The gross NPA ratio level of the remaining banks varies between 18.8 per cent and 12.62 per cent
These banks constitute more than half of the total number of 21 listed PSBs. The ministry's reviews comes at a time when the government has committed Rs 52,311 crore capital infusion in these 12 banks under PCA.
In the current fiscal, IDBI Bank has been committed the highest infusion of Rs 10,610 crore, followed by Bank of India, Rs 9,232 crore and UCO Bank Rs 6,507 crore.
Central Bank of India has been committed Rs 5,158 crore, Indian Overseas Bank Rs 4,694 crore, Oriental Bank of Commerce Rs 3,571 crore, Dena Bank Rs 3,045 crore, Bank of Maharashtra Rs 3,173 crore, United Bank of India Rs 2,634 crore, Corporation Ban Rs 2,187 crore and Allahabad Bank Rs 1,500 crore by the end of 2017–18.
The FMhad announced a Rs 2.11 lakh crore two-year road map to strengthen PSBs. Their NPAs have increased to Rs 7.33 lakh crore as of June 2017, from Rs 2.75 lakh crore in March 2015.