Govt coerces RBI to ease PCA norms

New Delhi: The governme­nt is in talks wi­th the Reserve Bank of India (RBI) for cha­n­ges in the pr­o­­­mpt corrective action framework to allow weak ba­nks to start normal lending and network expansion operations, according to a senior finance ministry official.

Economic policy decisi­o­ns need to be flexible and can’t be too stringent to adj­u­sted in times of crisis, the official said justifying the need for PCA norm relaxation.

RBI is yet to come out with its views on the issue despite repeated efforts by the finance ministry. The mi­nistry nominees – Rajiv Kumar and Subhash Chand­ra Garg, secretaries for financial services and econ­o­m­ic affairs – raised the issue again at RBI board meeting on Tuesday.

Elaborating RBI stance, deputy governor Viral Ach­arya said it’s important to persist with the PCA framework to deal with financially weak banks. “Any slackening of the approach in the midst of required course of action is an all-too-familiar and ultimately harmful habit that we must eschew,” he said speaking at the Indian Institute of Technology-Bombay on October 12.

Eleven state-owned len­d­e­rs are under the PCA fra­m­e­work that places restricti­o­ns on banks with weak financial and operational metrics.

The government expects some of them to come out of it, the official said. More resolution of stressed assets through the Insolvency and Bankruptcy Code and the Rs 54,000 crore (remaining part) capital infusion in FY19 will help lenders come out of PCA, he said. The resolution of some of large corporate default cases could help banks get out of PCA in the next few quarters, the official added.

The push for easier norms stems from the credit crunch faced by non-banking financial companies (NBFCs). While NBFCs are looking to sell loan portfolios, the ability of most government-owned banks to buy them is constrained. Private lenders with adequate capital too have no room to purchase these portfolios as their loan-to-deposit ratios are high.

Two big NPA accounts – Essar Steel and Bhushan Power & Steel – are in the final stages of resolution. Banks are expecting to recover 86 per cent of the Rs 49,000 crore loan in case of Essar Steel. ArcelorMittal has agreed to pay Rs 50,000 crore, including a Rs 8,000 crore capital infusion, to acquire the firm.

In the initial round of bidding, Bhushan Power & Steel had received bids of Rs 11,000 crore from JSW Steel, Rs 17,000 crore from Tata Steel and Rs 18,500 crore from Liberty House. JSW Steel subsequently revised bid to Rs 19,700 crore, which has now won the lenders’ approval.

Banks have made Rs 36,551 crore recovery in the first quarter, registering a 49 per cent growth over FY18. At the same time, operating profit has increased 11.5 per cent and losses declined 73.5 per cent on the quarter-on-quarter basis.