Tag: pca

RBI spells out rules for a bank to exit prompt corrective action framework, BFSI News, ET BFSI

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The Reserve Bank of India has modified the prompt corrective action plans for weaker banks with it laying down criteria for a bank to exit the framework once its financial metrics improve. It has also removed the profitability parameter for invoking the regulatory action.

The revised framework will be effective from January next year. The existing one has been in vogue since April 1, 2017. Under the existing rules, as many as 12 banks were placed under restrictions after they crossed the tolerance threshold. Barring one, all banks have exited the framework over the last two years but no uniform policy was applied for their exit. For example, RBI removed PCA from Bank of India and Bank of Maharashtra in January 2019 after their net non-performing assets ratio fell below the risk threshold of 6%.

But they were not profitable when the restrictions were lifted. In contrast, the erstwhile Oriental Bank of Commerce was profitable but its NPA was higher than 6% at the time PCA was removed from it. With the introduction of the structured exit policy, RBI has tried to address this anomaly. Under the existing framework, RBI invokes PCA if a bank makes net loss for consecutive financial years.

This clause has been removed in the revised guidelines. Once a bank is placed under PCA, taking the bank out of PCA framework and /or withdrawal of restrictions imposed under it will be considered if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements, one of which should be audited annual financial statement, RBI said Tuesday.

However, any exit from the framework would depend on RBI’s supervisory comfort of the RBI and assessment on sustainability of profitability of the bank. The regulator has also tweaked the capital norm and leverage rules. The objective of the PCA framework is to enable supervisory intervention at appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health, RBI said.

“The PCA framework is also intended to act as a tool for effective market discipline,” it said. These rules however do not preclude the regulator from taking any other action as it deems fit at any time, in addition to the corrective actions prescribed in the framework, which is applicable to all banks operating in India including foreign banks operating through branches or subsidiaries.

A bank is generally placed under the framework based on the audited annual financial results. However this does not bar RBI from imposing restrictions on any bank during the course of a year in extreme cases.



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RBI governor asks banks not to let down their guard, BFSI News, ET BFSI

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RBI governor Shaktikanta Das on Tuesday met with bank chiefs and asked them to remain vigilant to any emerging signs of vulnerabilities and take timely remedial measures to mitigate the risks. Even as Das acknowledged the resilience of the banking sector, the central bank sought to beef up pre-emptive action against weak banks by reworking its prompt corrective action (PCA) norms to enable supervisory intervention at the right time and use of lending restrictions as a tool for market discipline.

The note of caution comes at a time when there is increased optimism in respect of the economy even as pandemic-related stress continues to be felt in some sectors. Bankers have started talking of recovery even as several countries in the world are going through a third phase of lockdowns.

Das on Monday held separate meetings with the MDs and CEOs of public sector banks and some private banks through videoconferencing. He advised banks to take timely remedial measures to mitigate the risks and maintain the stability of not only the institutions themselves but also of the overall financial system. Several other matters, including credit flows, especially to micro and small enterprises, were also discussed during the meetings.

Das sought feedback from bank chiefs on the outlook for stressed assets and measures for mitigation, pricing of risks and the collection efficiencies experienced by banks. He also asked banks about their engagement with fintech entities. This was the first meeting with banks after Das was granted a fresh three-year term by the government last week. The meeting was attended by RBI’s deputy governors M K Jain, M Rajeshwar Rao and T Rabi Sankar.

The new norms for PCA come after most weak banks have exited the lending restrictions imposed by the central bank under its earlier framework for early corrective action. A record number of 11 banks were placed under PCA after banks saw a surge in bad loans following RBI’s asset quality review in 2016.

“The PCA framework does not preclude the RBI from taking any other action as it deems fit at any time, in addition to the corrective actions prescribed in the framework,” RBI said. Bankers said that in the past banks were placed under PCA based on their audited financial results and now the indications are that the RBI might impose the restrictions if it feels that they are required based on its supervision.

On Tuesday, RBI deputy governor Jain said that the central bank was also focusing on governance reforms. He said that banks need to put in place governance standards to be worthy of public trust.

“Being highly leveraged entities and with the interconnectedness, there must be a separation between ownership and management, so that they operate on professional lines,” he said.



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New PCA framework for banks from January

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Stressed banks may be prohibited from expansion of credit portfolio and asked to restrict outsourcing activities, going by the Reserve Bank of India’s revised prompt corrective action (PCA) framework.

A bank prohibited from expansion of credit/investment portfolios under PCA will, however, be allowed to invest in government securities/other high-quality liquid investments.

As per the extant framework, the RBI can ask a bank under PCA to only restrict/reduce credit expansion for borrowers below certain rating grades, reduce exposure to unsecured borrowers, among others. But it does not prohibit expansion of credit/investment portfolios.

The RBI said it would monitor three key areas — capital, asset quality and leverage — in the revised framework and breach of any risk threshold may result in invocation of PCA. Under the extant framework, the RBI also monitors profitability, besides the aforementioned areas.

Exit from PCA

The provisions of the revised PCA framework, which will be effective from January 1, 2022, clearly specify the conditions under which the central bank will allow exit from PCA and withdrawal of restrictions under PCA.

Taking a bank out of PCA framework and/or withdrawal of restrictions imposed will be considered if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements, one of which should be Audited Annual Financial Statement (subject to assessment by RBI).

Further, this will be based on the supervisory comfort of the RBI, including an assessment on sustainability of profitability of the bank.

The revised framework incorporates resolution of a PCA bank by Amalgamation or Reconstruction (under Section 45 of Banking Regulation/BR Act 1949).

This follows amendment to Section 45 of the BR Act, which enables the Reserve Bank to reconstruct or amalgamate a bank, with or without implementing a moratorium, with the approval of the Central government.

Per the extant framework too, a breach of ‘Risk Threshold 3’ of Common Equity Tier I capital by a bank would identify it as a likely candidate for resolution through tools like amalgamation, reconstruction, winding up, etc.

In the case of a default on the part of a bank in meeting the obligations to its depositors, possible resolution processes may be resorted to without reference to the PCA matrix.

The RBI, as part of its mandatory and discretionary actions, may also impose appropriate restrictions on capital expenditure, other than for technological upgradation within Board approved limits, under the revised PCA.

The current provisions relating to imposition of restriction on dividend distribution/ remittance of profits, promoters/owners/parent (in the case of foreign banks) being required to bring in capital, and restriction on branch expansion, domestic and/or overseas, will continue under the revised PCA framework.

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Uco Bank posts 7-fold jump in Q2 net, BFSI News, ET BFSI

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Public sector lender Uco Bank has reported a seven-fold jump in its net profit to Rs 205.3 crore for the second quarter this fiscal from Rs 30.1 crore for the same period last fiscal.

The city-based lender, which recently came out of the Prompt Corrective Action (PCA) measure of Reserve Bank of India, has witnessed a significant improvement in its asset quality during the second quarter despite the fact that it recognized its exposure of around Rs 1,000 crore in Srei Infrastructure Finance and Srei Equipment Finance as non-performing assets (NPAs).

The Kolkata bench of the National Company Law Tribunal (NCLT) earlier this month gave its approval to start insolvency proceedings against Srei Infrastructure Finance and its wholly-owned subsidiary Srei Equipment Finance after the Reserve Bank of India had filed insolvency applications against the two non-banking financial companies (NBFCs).

Uco Bank MD & CEO AK Goel, without mentioning the name of Srei, said, “It will be very premature to talk about the bad loan recovery from these two NBFCs. But we will remain optimistic that a good recovery should come (through insolvency resolution process).”

During the second quarter, the bank’s NPAs in absolute terms fell 3.6% quarter-on-quarter to Rs 10,909.7 crore from Rs 11,321.7 crore in the first quarter this fiscal. The Gross NPA ratio during the quarter under review declined 39 basis points sequentially at 8.9%.



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Will profitable PSUs need capital support from govt this year?, BFSI News, ET BFSI

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The government is likely to pump capital in public sector banks during the last quarter of the current financial year to meet regulatory requirements.

The government in Budget 2021-22 made an allocation of Rs 20,000 crore for capital infusion in the state-owned banks.The capital position of banks would be reviewed in the next quarter, and depending on the requirement, infusion will be made to meet the regulatory needs.

In the current fiscal so far, all 12 public sector banks have posted a profit, which is being ploughed back to bolster the balance sheet of the banks.

Going forward, the rise in stressed assets would determine capital requirement. If numbers are anything to go by, the financial health of public sector banks are showing gradual signs of improvement across the spectrum.

What Icra says

As per Icra’s estimates, public sector banks (PSBs) may not need the capital budgeted by the government for FY22, even with enhanced capital requirements.

However, banks are advised to keep provisions for any unforeseen events as it would provide confidence to banks, investors and credit growth. Icra said that large private sector banks (PVBs) also remain well-capitalised though few mid-sized ones could need to raise capital.

“We continue to maintain our credit growth estimate of 7.3-8.3 per cent for banks for FY2022 compared to 5.5 per cent for FY2021,” Icra said.

Despite expectations of moderation in gains on bond portfolios because of expectations of rising bond yields in FY22, the return on equity for banks is likely to remain steady at 4.4-7.6 per cent for PSBs (5.1 per cent in FY21) and 9.5-9.9 per cent for PVBs (10.5 per cent in FY2021), the report said.

PCA framework

Will profitable PSUs need capital support from govt this year?

Last month, the Reserve Bank of India removed UCO Bank and Indian Overseas Bank from its prompt corrective action framework, following improvement in various parameters and written commitment from them that would comply with the minimum capital norms.

The only public sector lender left under the PCA framework is Central Bank of India.

PCA is triggered when banks breach certain regulatory requirements such as return on asset, minimum capital, and quantum of the non-performing asset. These restrictions disable the bank in several ways to lend freely and force it to operate under a restrictive environment that turns out to be a hurdle to growth.

Last financial year, the government infused Rs 20,000 crore in the five public sector banks. Out of this, Rs 11,500 crore had gone to three banks under PCA — UCO Bank, Indian Overseas Bank, and Central Bank of India.

The government infused Rs 4,800 crore in Central Bank of India, Rs 4,100 crore in Indian Overseas Bank and Kolkata-based UCO Bank got Rs 2,600 crore. The government has infused over Rs 3.15 lakh crore into public sector banks (PSBs) in the 11 years through 2018-19.

In 2019-20, the government infused a capital of Rs 70,000 crore into PSBs to boost credit for a strong impetus to the economy.



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PSU banks likely to get capital support in Q4 to meet regulatory requirements, BFSI News, ET BFSI

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New Delhi, The government is likely to pump capital in public sector banks during the last quarter of the current financial year to meet the regulatory requirements. The government in the Budget 2021-22 has made an allocation of Rs 20,000 crore for the capital infusion in the state-owned banks.

bank

In the current fiscal so far, all 12 public sector banks have posted a profit, which is being ploughed back to bolster the balance sheet of the banks, sources said.

Going forward, they said, the rise in stressed assets would determine capital requirement.

If numbers are anything to go by, the sources said, the financial health of public sector banks are showing gradual signs of improvement across the spectrum.

Last month, the Reserve Bank removed UCO Bank and Indian Overseas Bank from prompt corrective action framework (PCAF), following improvement in various parameters and a written commitment that the state-owned lender will comply with the minimum capital norms.

However, the only public sector lender left under the PCA framework is Central Bank of India. PCA is triggered when banks breach certain regulatory requirements such as return on asset, minimum capital, and quantum of the non-performing asset.

PCA restrictions disable the bank in several ways to lend freely and force it to operate under a restrictive environment that turns out to be a hurdle to growth.

Last financial year, the government infused Rs 20,000 crore in the five public sector banks. Out of this, Rs 11,500 crore had gone to three banks under the PCA — UCO Bank, Indian Overseas Bank, and Central Bank of India.

The government infused Rs 4,800 crore in Central Bank of India, Rs 4,100 crore in Indian Overseas Bank and Kolkata-based UCO Bank got Rs 2,600 crore.

The government has infused over Rs 3.15 lakh crore into public sector banks (PSBs) in the 11 years through 2018-19. In 2019-20, the government infused Rs 70,000 crore capital into PSBs to boost credit for a strong impetus to the economy.



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RBI lifts PCA curbs on Indian Overseas Bank, BFSI News, ET BFSI

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The Reserve Bank of India today lifted Prompt Corrective Action restrictions from the Indian Overseas Bank, the central bank said in a release.

The decision came after the bank reported its earnings for the year ended March 31, 2021, and the RBI observed that IOB was not in breach of the PCA parameters.

IOB has also provided a written commitment that it would comply with the norms of Minimum Regulatory Capital, Net NPA and Leverage ratio on an ongoing basis and has said that it would make structural and systemic improvements, RBI said in the release.

The RBI has said that it will continue monitoring the bank.

PCA is triggered when banks breach regulatory norms such as return on asset, minimum capital, among others.

Earlier this month, RBI had lifted PCA restrictions on UCO Bank. Now, only Central Bank of India remains in the list.



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UCO Bank out of PCA, will RBI blink in case of IOB, Central Bank?, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) has removed UCO Bank from its Prompt Corrective Action Framework (PCAF) but the fate of Central Bank and Indian Overseas Bank hangs in balance.

The central bank lifted the PCA on Uco Bank following improvement in various parameters and a written commitment that the state-owned lender will comply with the minimum capital.

However, RBI had reservations over the capital adequacy levels of the banks under PCA.

Interestingly, Indian Overseas Bank and Central Bank were reported to be among the four banks shortlisted by the government for privatisation.

The RBI objection

In FY21, the government infused Rs 20,000 crore in ve banks through the instruments. Central Bank of India was the biggest beneficiary with Rs 4,800 crore, followed by Indian Overseas (Rs 4,100 crore), UCO Bank (Rs 2,600 crore).

However, the RBI had raised questions over the government’s bank capital infusion programme through non-interest-bearing bonds, according to a report.

The RBI reasoned that capital infusion through bonds cannot be taken at face value and, therefore, these banks may still be short of regulatory capital, they said. In such a situation, they will continue under the PCA framework. Under the PCA regime, business restraints are imposed on struggling banks until they regain health.

The government went ahead despite RBI’s initial reservations and now the regulator had expressed serious concerns. The entire fund infusion through such bonds will then not count toward regulatory capital.

RBI is not inclined to pull these lenders out of the PCA framework based on such capital infusion and may further direct lenders to recalculate their capital adequacy ratio based on the actual value of the bonds.

The PCA status

Indian Overseas Bank, Central Bank have reported net non-performing assets (NPAs) below levels that trigger PCA. However, on the proforma net NPA front, Central Bank falls short as its NNPA is 6.58% against the 6% required to be out of PCA.

Even after PCA exit, these banks may still be under RBI watch. In the case of IDBI Bank, which has committed to comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis, RBI has said the lender would be under continuous monitoring. “It has been decided that IDBI Bank be taken out of PCA framework, subject to certain conditions and continuous monitoring,” RBI had said.

Privatisation bid

Four banks on the privatisation shortlist included Bank of Maharashtra, Bank of India, Indian Overseas Bank and the Central Bank of India.

Two public sector banks and one general insurance company are expected to be disinvested this year in addition to the divestment of IDBI Bank, Finance Minister Nirmala Sitharaman had announced during the Union Budget presentation.

Bringing the banks out of PCA could boost their valuations in the event of privatisation.



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RBI lifts Prompt Corrective Action restrictions on UCO Bank, BFSI News, ET BFSI

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FILE PHOTO: The Reserve Bank of India seal is pictured on a gate outside the RBI headquarters in Mumbai, India, February 2, 2016. REUTERS/Danish Siddiqui

The Reserve Bank of India today lifted Prompt Corrective Action (PCA) restrictions on UCO Bank, after the Board of Financial Supervision reviewed the financials of the bank, the central bank said in a statement.

The central bank said UCO Bank provided a written commitment that it would comply with the norms of Minimum Regulatory Capital, Net Non Performing Assets and Leverage ratio on an ongoing basis.

UCO Bank will, however, be continuously monitored by the RBI.

Earlier in June, UCO Bank Managing Director Chief Executive Officer AK Goel said that he was hopeful that the central bank would lift PCA restrictions on the bank.

PCA is triggered when banks breach regulatory norms such as return on asset, minimum capital, among others.

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Yes Bank board okays prosecution of Rana Kapoor, BFSI News, ET BFSI

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Troubled lender Yes Bank’s board has given sanction to prosecute its jailed promoter Rana Kapoor under the Prevention of Corruption Act (PCA).

This came following a requisition by the Central Bureau of Investigation (CBI), which informed a local magistrate’s court of the development and filed a supplementary chargesheet in the Yes Bank fraud case earlier this week.

The central agency has charged R Anand, the then area sales manager, as well as a junior ex-employee of Yes Bank in the case, sources privy to the development told ET.

Last year, the CBI had sought the board’s approval after a special CBI court in Mumbai rejected its charge sheet against the banker under PCA as it lacked prosecution sanction.

The special court remitted the case to a lower court for cognisance under sections related to cheating and criminal conspiracy of the Indian Penal Code (IPC), which attract lesser punishment.

Prior sanction from a competent authority is mandatory to an accused public servant to stand trial under PCA, as per an amendment to the Act notified in 2018.

“Once the consent was accorded by the board, the lower court was intimated and since the sections invoked under PCA attract punishment of over seven years, the case papers have been sent to the Sessions court. A supplementary chargesheet has also been submitted before the Sessions court and cognisance is awaited,” a senior official told ET.

The sanction to prosecute Kapoor was granted by the Yes Bank board, while that for Anand was given by the managing director of the bank, the source added. The agency is probing Kapoor and Dewan Housing Finance Corporation Ltd’s (DHFL) promoters Kapil and Dheeraj Wadhawan in an alleged corruption case of over Rs 600 crore.

“During the course of the probe, it was found that Anand and another junior employee acted on the advice of Kapoor and overruled the recommendations given by the risk management committee against loans sanctioned to DHFL,” the official added.

The committee, in its recommendation, had highlighted that the Letter of Intent was not made to the company that applied for the loan, but in the name of a different company.

The project for which the loan was sought did not have the requisite sanction from the local authorities, including MHADA, and the tenants were not evicted, the official added.

“These over-rulings are discussed on email exchanged between the three and the same has been found during the course of the probe which has been detailed out in the chargesheet,” the source said.

According to the CBI’s first chargesheet, in June 2018, Kapoor, the then head of Yes Bank’s management credit committee, sanctioned a loan of `750 crore on an application by the promoters of DHFL in the name of Belief Realtors Pvt Ltd to develop the Bandra Reclamation Project.

This amount was advanced to RKW Developers, a company controlled by Dheeraj Wadhawan, though the bank’s risk management team had pointed out multiple issues with the proposal.

The agency’s probe revealed that the loan was not utilised for the stated purpose.

Simultaneously, Kapil Wadhawan is alleged to have paid a kickback of `600 crore to Kapoor and his family members in the garb of a builder loan from DHFL to DOIT Urban Ventures (India) Private Ltd (DUVPL).

Rana Kapoor’s daughter Roshni is one of the directors of DUVPL. After deducting a processing fee, Rs 632 crore was transferred to RKW Developers.



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