India: RBI panel may assess financials of 11 PSU banks

  • The Reserve Bank of India (RBI) later this week would take the first step to explore whether lending curbs imposed on weaker banks — better known as the prompt corrective action — could be partly lifted on some of the state-owned lenders.
  • The central bank’s Board for Financial Supervision (BFS) is scheduled to meet on 6 Dec 18 to analyse latest financials of the 11 banks under the PCA framework to decide on the matter, according to the committee’s agenda finalised a few days ago.
  • The BFS members would give its recommendations to the RBI board which would take a final call on the contentious subject.
  • There is a consensus between the RBI and the government over the review of PCA framework. “About three PCA banks have shown some improvement. The board has to consider how PCA could be phased, what these banks could do in the next six months, and the role that the central government and RBI would play,” said a person familiar with the issue.
  • Under the PCA regime, banks are encouraged to avoid certain risky activities, improve operational efficiency and focus on conserving capital. But many bankers fear that continuance under the PCA regime for long could drive away large, creditworthy clients and further weaken the institutions.
  • The 11 banks constitute about one-fourth of India’s banking industry, which is roughly the size of the country’s non-banking finance companies (excluding the housing finance firms). Many NBFCs are slowing down and shrinking their balance sheets to stay afloat.

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