RBI may look at relaxing PCA framework

The Reserve Bank of India may look at relaxation of its prompt corrective action (PCA) framework, said a senior government official.

The government also expects some lenders to come out of the PCA framework on their own after recent recoveries made through the Bankruptcy process, the above quoted official added.

At present there are 11 banks under the RBI’s PCA framework and the minimum common equity (CET) Tier I ratio as prescribed by RBI stands at 5.5% as against 4.5% under Basel III norms.


“These issues were discussed in the RBI’s board meeting,” he said.

RBI, however, has defended its PCA framework in the past. Earlier this month RBI’s deputy governor Viral Acharya had said that any relaxation of the PCA imposed on weak banks should be avoided.

“Imposition of PCA can thus be seen as first, stabilizing the banks at risk, and then, undertaking the deeper bank reforms needed for long-term viability of the business model of these banks,” he had said.

But the government is also hopeful that the recoveries made by banks under the Bankruptcy process will help them to bring down their losses and free up more capital for lending.

Lenders are expecting to recover almost 86% of the Rs 49,000 crore loan in case of Essar Steel. ArcelorMittal has agreed to pay a total of Rs 50,000 crore, including a Rs 8000-crore capital infusion, to acquire the firm.

In September after the annual performance review of PSBs finance minister Arun Jaitley had said that the bankers also have certain expectations, which they will consider.

“Some of them did mention that PCA guidelines should be revisited because that is indirectly impacting their lending ability,” he had said adding that other request was that government should be more up front on capital requirement of some of these banks.

After the annual review meet, financial services Rajiv Kumar said the banks have sought relaxation because the way the norms are, unless their income increase there is difficulty in coming out of the PCA.

“So there are different thresholds in the PCA norms, they have requested for the provisioning norms, and they have also requested for the way lending starts and risk weighed assets also assigned so as to allow them a little headroom for growing, this is what is the demand,” he had said.