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Three more Banks out of RBI’s PCA framework

Three more Banks out of RBI's PCA framework

On 26th February 2019, board for Financial Supervision (BFS) held a meeting to analyze the performance of Allahabad Bank, Dhanalaxmi Bank, and Corporation Bank. The BFS observed that Government of India infused of funds on 21st February 2019 to 2 banks – Allahabad Bank received Rs. 6,896 crores and Corporation bank received Rs. 9,086 crores. This infusion of funds has surged in their capital funds their loan loss provision. Further, they are in line with the Prompt Corrective Action (PCA) framework.

Furthermore, both the companies have reported that their Capital Adequacy Ratio (CRAR), Common Equity Tier 1 (CET1), Net Non-Performing Asset (NPA) and leverage ratio no longer breach the PCA framework of the RBI. Also, both the bank has also informed that of their structural and systematic improvement are in place to maintain these numbers. These are in line with the principles adopted by the RBI on January 2019.

BFS removed Allahabad Bank, Corporation Bank, and Dhanlaxmi Bank out of their PCA framework. It is subject to certain conditions and continues monitoring.

The BFS to a decision to remove Dhanlaxmi bank after continues monitoring and found no breach in the Risk Threshold of the PCA framework.

Even though these banks are out of the PCA framework of the RBI, they will be monitored by the regulator on the basis of various parameters.

The Gross NPA (GNPA) of Allahabad Bank in Q3FY19 stood at 17.81% against 14.38 in Q3FY18. Gross NPA of Corporation bank in Q3FY19 as compared to advance loans stood at 17.36%. In addition, the GNPA of Dhanlaxmi Bank Increases to 8.11% against 6.96 in the corresponding previous quarter.

Bank of India, Oriental Bank of Commerce and Bank of Maharashtra were released by the RBI from PCA framework on 31 January 2019.

Banks still under PCA Framework:

There are 6 Public Sector Banks yet to come out of PCA guidelines. They are UCO Bank, Central Bank of India, Indian Overseas Bank, United Bank of India, IDBI Bank and Dena Bank.

Prompt Corrective Action (PCA) Framework:

The PCA guidelines by the RBI restricts banks from lending and in turn restricts expanding. The PCA framework is imposed when the three key metric ratios are breached. They are Capital Adequacy Ratio (CRAR), Common Equity Tier 1 (CET1), Net Non-Performing Asset (NPA).

The government of India’s efforts:

The government of India is keen to remove the remaining crippled PSU banks out of the RBI’s PCA guidelines through Mergers and capital infusion. It has been done so that the Banks are able to lend again.

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