After the expected modification of guidelines and apparent improvement in bottomline of the public sector banks, the finance ministry is expecting that 3-4 banks would come out of the Reserve Bank of India’s (RBI) Prompt Corrective Action (PCA) watchlist in current financial year (FY19).
Of the 21 state-owned banks, 11 are under the PCA framework, which imposes lending and other restrictions on weak lenders. These are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra. The RBI recently in its central board meeting had decided the issue of banks under PCA will be examined by Board for Financial Supervision (BFS) of the central bank.
Besides, the PCA framework kicks in when banks breach any of the three key regulatory trigger points namely capital to risk-weighted assets ratio, net non-performing assets (NPA) and return on assets (RoA). Globally, PCA kicks in only when banks slip on a single parameter of capital adequacy ratio.