Parliamentary Panel Proposes Review of PCA Framework

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Economic Times, January 04, 2019

New Delhi: A key parliamentary committee has recommended a review of the prompt corrective action (PCA) framework for stressed banks and questioned capital norms for Indian lenders that exceed Basel III standards, putting pressure on the Reserve Bank of India (RBI) to address these issues.

The Veerappa Moily-headed standing committee on finance also suggested a panel be established to evaluate the role, powers and authority of the RBI. It said a climate of fear should not be created among bankers as that could lead to a credit freeze. The committee submitted its report in August last year but it has only now been made public. Its recommendations are not binding.

The government has been raising these issues with the RBI, leading to friction between the finance ministry and the central bank. The government appointed retired bureaucrat Shaktikanta Das as RBI governor last month after Urijit Patel resigned amid a tussle over the regulator’s autonomy.

Committee also suggested a panel be established to evaluate the role, powers and authority of the RBI

PCA FRAMEWORK

The committee expressed concern that more public sector banks (PSBs) could be brought under the PCA framework, which could generate a vicious cycle in the banking sector and the economy at large. Many of the PSBs brought under PCA last year are already on the brink and the RBI’s decision in February last year to revoke all earlier debt-restructuring schemes had hastened the slide, it said.

“It is not clear as to how these banks will turn around their operations with the existing curbs on their lending and even deposit-taking in the case of some,” the committee said. Even the objective of boosting recoveries doesn’t seem to have been achieved, it said.

The committee urged both the RBI and the government to constantly monitor the situation for each of these banks and relax or review the PCA framework, especially in case of those where even retail operations are prohibited. It also called for a clear roadmap for the 11 PCA banks, spelling out how they will emerge from this.

FEBRUARY CIRCULAR

It asked the RBI to consider separate treatment of nonperforming assets (NPAs) due to wilful defaulters and those attributed to extraneous reasons.

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