RBI Frees Allahabad Bank, Corporation Bank, Dhanlaxmi Bank From PCA Post Capital Infusions, Structural Improvement

RBI Governor Shaktikanta Das. (Vipin Kumar/Hindustan Times via Getty Images)

The Reserve Bank of India’s Board for Financial Supervision yesterday (Tuesday, 26 February) decided to remove three more banks, namely Allahabad Bank, Corporation Bank and Dhanlaxmi Bank Ltd. from its Prompt Corrective Action (PCA) list, reports Bloomberg Quint.

PCA is a corrective framework under which the central bank places certain banks seen to be performing poorly. Around half of all public sector banks had fallen under the PCA at one point.

RBI noted that Allahabad Bank and Corporation Bank can see their net non-performing asset ratio come below the PCA threshold considering the recent government decision clearing capital infusions into the entities by it. The additional liquidity will also allow these banks to shore up their capital adequacy ratio, another important criterion for being on the PCA list.

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As per data from the December 2018 quarter, these two ratios of the two banks were breaching the requirement set under the PCA framework; this is set to change as Allahabad Bank and Corporation Bank will be given Rs 6,896 crore and Rs 9,086 crore respectively by the centre.

“The banks also apprised RBI of the structural and systemic improvements put in place to maintain these numbers,” an RBI statement said.

However, even though credit restrictions have been removed, this wouldn’t necessarily result in these banks being able to grow in the future.

“It appears that the PCA framework is currently looking at only one parameter, which is capital, for the banks under PCA. Operationally, their performances have been weak and will likely remain so in the foreseeable future,” director at Fitch Ratings India, Saswata Guha said.

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