RBI says no to easing PCA rules; The board discusses the lack of liquidity and the problem of the NPA

RBI says no to easing PCA rules; The board discusses the lack of liquidity and the problem of the NPA

The board of directors of the Reserve Bank of India (RBI) learned that there had been talk of easing the framework for prompt corrective measures (PCA) at a very attended meeting on Tuesday. but no relief has been approved on this matter. It also deliberated on the measures to be taken to ease the flow of credit to non-bank financial corporations (NBFCs) following the financial leasing crisis for infrastructure and financial services (IT & FS) and persistent concerns about stressed assets with public sector banks (PSB).

"No relaxation of the PCA framework was agreed at the meeting," a source told FE. The board is expected to meet again soon in November to discuss issues such as the liquidity crisis.

Responding to the demand of several stressed PSBs, the Ministry of Finance has pleaded for a relaxation of the "strict" framework of the CPA in order to allow PSB to lend more freely at the time when NBFCs are facing a lack liquidity. The PCA framework aims to restore the health of sick banks through some of the difficult conditions imposed on them. Financial Services Secretary Rajiv Kumar and Economic Affairs Secretary Subhash Chandra Garg, who represents the ministry on the board of directors, have reportedly learned that a relaxation of the PCA would not only give policy room to maneuver. PSB growth, but also allow them to lend more. support efforts to mitigate NBFC's lack of liquidity.

No fewer than 11 of the 21 public sector banks (RSPs) are on the list of people to be monitored by the RBI for tense finances. Two of them – Dena Bank and Allahabad Bank – are even subject to loan restrictions. These stressed banks account for 30% of deposits and 29% of advances from all 21 PSBs.

No less than eleven of the 21 public sector banks (PSB) are on the RBI watch list for its tense finances, two of which – Dena Bank and Allahabad Bank – are even facing a lending restriction. These stressed banks account for 30% of deposits and 29% of advances from all 21 PSBs.

The latest demand is expected to raise tension between the Ministry of Finance and the RBI, the central bank opposing the granting of such relief. RBI deputy governor Viral Acharya recently said that, without the imposition of the PCA, some banks would have suffered larger losses and would have required even greater recapitalization with taxpayers' money. . Of the summary bonds issued during the last financial year by the various asset management companies for an amount of Rs 80,000 crore, the 11 banks of the PCA accounted for up to RON 52,311.

The RBI has already published last week its dissenting note on some recommendations of a government group chaired by the secretary for economic affairs, opposing the idea of ​​setting up an independent regulator outside the central bank to deal with payment issues.

RBI Governor Urjit Patel, Financial Services Secretary Rajiv Kumar, and Secretary of Economic Affairs Subhash Chandra Garg, Deputy Governors and other members attended the meeting on Tuesday.

To mitigate the NBFC's liquidity problem, the RBI has raised the ceiling of loans to a single NBFC until the end of December, which should facilitate the granting of additional loans of Rs 59,000 crores to NBFCs . Other measures to alleviate the crisis should soon follow.

With respect to the BCP, stressed banks face restrictions on dividend distribution and profit transfer when placed in such a framework. In addition, lenders are not allowed to expand their branch networks and must maintain higher provisions. Executive compensation and directors' fees are also capped. In some cases, they can not lend until they settle their finances.

At last month's annual meeting chaired by Finance Minister Arun Jaitley, who reviewed BSP performance, key bankers sought to ease the CPA framework, saying this agreement had an impact on their lending capacity. Among other things, the PSB had sought to obtain some leeway with respect to the provisioning standards, threshold 1, the loan start-up mode and the weighting of the risks assigned to the assets, so as to leave them a margin of discretion. growth.

The banks under the PCA are: IDBI Bank, Bank of India, UCO Bank, Indian Central Bank, Indian Overseas Bank (IOB), Eastern Bank, Dena Bank, Bank of Maharashtra, United Bank of India (UBI), Bank Corporation and Allahabad Bank.

The four Deputy Governors – NS Vishwanathan, Viral Acharya, BP Kanungo and Mahesh Kumar Jain – also attended the meeting. The agency also cited an unidentified source of the RBI. The two new members – S Gurumurthy and SK Marathe – who were inducted in August also attended the meeting, he added. (with agency entries)

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