RBI not Keen to Pull Banks out of PCA Framework

The Reserve Bank of India (RBI) may delay regularising struggling state-run lenders that are under the prompt corrective action (PCA) framework as it has reservations over their capital adequacy levels.

The sector regulator has raised questions over the government’s bank capital infusion programme through non-interest-bearing bonds, said people with knowledge of the matter.
The RBI reasons that capital infusion through bonds cannot be taken at face value and, therefore, these banks may still be short of regulatory capital, they said. In such a situation, they will continue under the PCA framework. Under the PCA regime, business restraints are imposed on struggling banks until they regain health.

Two officials aware of the developments confirmed that the finance ministry and the RBI have differences on capital issuance through non-interest-bearing bonds and their computation toward capital adequacy norms.
In FY21, the government infused Rs 20,000 crore in five banks through the instruments. Central Bank of India was the biggest beneficiary with Rs 4,800 crore, followed by Indian Overseas Bank (Rs 4,100 crore). Both lenders are under PCA, along with UCO Bank, which received Rs 2,600 crore.
“The government went ahead despite RBI’s initial reservations and now the regulator has expressed serious concerns. RBI may not allow banks to treat infusion through such bonds at par value,” said one of the officials.

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