Relaxations to risk thresholds mulled; Centre may infuse capital to help banks meet regulatory norms
Four public sector banks — Bank of Maharashtra, Corporation Bank, Allahabad Bank and Bank of India — that are under the prompt corrective action framework of RBI, may come out of the restrictions following improved performance, banking industry sources said.
This follows a review of the performance of all 11 banks that are under the PCA framework, as decided during the November board meeting of the Reserve Bank of India. The board of financial supervision of the RBI has reviewed the banks’ half yearly performance.
In addition, these banks have been asked to make projections of their provisioning requirements for the third and fourth quarter of the current financial year to assess how much capital is required to meet regulatory requirement. The government is likely to infuse any shortfall in regulatory capital in order to help the lenders to come out of the PCA framework, sources said.
Pune-based Bank of Maharashtra, for example, turned profitable in the July-September quarter, reporting a net profit of ₹27 crore compared to a loss of ₹23.2 crore in the same period of the previous year. The bank’s asset quality also improved with gross and net non-performing ratios declining. Bank of Maharashtra stocks were up almost 9% on Wednesday, and closed the day at ₹14.76.
To help the banks come out of the PCA, RBI may provide some relaxations to the risk thresholds, sources said. With 11 out of 21 public sector banks under the PCA framework, credit flow to the productive sectors of the economy has been impacted. Estimates suggest that these 11 banks have 17% share in the loan market.
November board meet
The government has been asking the regulator to relax PCA norms that had became a bone of contention between the Centre and RBI.
However, after the November board meeting where the issue was discussed, RBI, in a statement said, “ With regard to banks under PCA, it was decided that the matter will be examined by the Board for Financial Supervision of RBI.”
Another state-owned lender that may see withdrawal of PCA norms is Corporation Bank which reported a net profit of ₹103 crore for the quarter ended September 30, as provisions for bad loans declined sharply. The bank had posted a loss of ₹1,035.20 crore a year earlier. Corporation Bank shares rose 4.6% to ₹29.20. Bank of India and Allahabad Bank, however, reported losses in the July-September quarter. The former’s shares ended 6.6% higher while Allahabad Bank shares rose 4.2%.