North Block has directed all 11 state-run banks under Reserve Bank of India’s prompt corrective action (PCA) framework to submit their revival plans by the end of this week. This comes after some lenders told the finance ministry that it may take more than a year for them to come out of the restrictions imposed under PCA.
“All banks are already looking to consolidate their operations. They will present a more detailed plan, which will incorporate rationalisation of branches, differentiated products and services, and stringent austerity measures,” said a government official aware of the deliberations. They will also follow stringent austerity measures that will include a freeze on hiring in some cases.
The official said that at least 3-4 banks may come out of PCA framework much earlier than expected. “As more cases resolve under the Bankruptcy Code, we expect more capital to free up and reduction in non-performing assets,” he said. After the resolution of Bhushan Steel through the dedicated bankruptcy framework, financial services secretary Rajiv Kumar on Monday in a tweet said that there will be a reduction of Rs 35,000 crore of NPA for state-run lenders, which for some banks will bring down their bad loan by more than Rs 10,000 crore.
“Under IBC in Bhushan Steel, PSBs income (is) of about Rs 7,500 crore from writeback. Future upside through over six crore equity shares acquired by PSBs…,” he tweeted. Another government official said that though there is a case for relaxation of the PCA framework, it is highly unlikely that the central bank will budge. “Some banks said that the PCA norms be relaxed but right now there is no such pressing need,” he said.
Global rating agency Moody’s Investors Service on Monday downgraded the local and foreign currency deposit rating of Punjab National Bank to junk. Moody’s Investors Service on Monday downgraded the local and foreign currency deposit rating of Punjab National Bank to junk. Moody’s estimates that the bank will need around Rs 12,000-13,000 crore as capital infusion to strengthen its capital ratios. “As the second-largest public sector bank in India by total deposits, the systemic importance of PNB is very high and Moody’s expects that the government will provide extraordinary support to the bank’s creditors and depositors when required,” it said.
Last week, after holding a review meet with these 11 lenders, finance minister Piyush Goyal had said that the government will give them all possible support. “We will ensure that the central government gives every possible support to further strengthen the resolve of these banks to come out of PCA framework as quickly as is possible,” he had said after meeting chief executives of these 11 PSBs.