Banks under the Prompt Corrective Action (PCA) framework are all set to reap its benefits in the coming days. The Finance Ministry is expected to inject a breath of fresh air to the tune of Rs 14,500 crore to improve their financial health.
The Reserve Bank of India’s PCA framework was initiated as an intervention tool for flat-lining banks. Currently, 3 banks are under its purview –the Indian Overseas Bank, Central Bank of India and UCO Bank. Restrictions on lending policies, management compensation and directors’ fees are imposed on these.
The decision taken by the Finance Ministry could not have come at a better time. A majority of state-owned banks like the State Bank of India, Punjab National Bank, Canara Bank and India Bank have already amassed capital through various options. The influx of cash will certainly propel the banks in dire straits out of the red zone. What this means is that the banks presently under PCA provisions can now break free of their grasp.
The list of possible recipients of the capital fusion is still being worked on at present. The Ministry is expected to release the final list along with the capital in the upcoming days.
The Parliament had given green light for the allotment of Rs 20,000 crore as capital infusion for Public Sector Banks in September last year. After the allocation of Rs 5,500 crore to Punjab & Sind Bank last November, the anticipated package from the Finance Ministry is seen as a step in the right direction.
The recent withdrawal of the IDBI bank from the PCA framework on the basis of its improved performance is a huge win for the banking sector.
The proposed action by the Finance Ministry is a welcomed one but the beneficiaries will have to gird on their swords if they really want to get over the fence.