The Finance Minister mentioned in the budget speech that in the past 4 (four) years, recovery of more than Rs.4 lakh crore has been achieved by the regulations of the Insolvency and Bankruptcy Code, 2016 (IBC) and the non performing assts (NPAs) have reduced by almost Rs.1 lakh crore. The government in the budget 2019 has proposed to recapitalise Public Sector Banks with Rs.70,000 crores (Rupees Seventy Thousand Crores).
While the government has not been clear on how this 70,000 crores will be allocate, it was stated that doorstep banking will be introduced and banking will be made easier for everyone.
It was boasted that the smooth consolidation of banks had taken place and six banks were brought out of Prompt Corrective Action (PCA) norms of Reserve Bank of India (RBI).
PCA is a corrective measure taken by the RBI when banks are not performing well on their balance sheet. This PCA is set on three parameters.
Capital Ratios;
Asset Quality; and
Profitability.
The level of risk threshold in PCA is from I to III, I being the lowest and III being the highest. Bases on the level of each bank, RBI will put certain restriction on certain aspect. It is a perception in the market that PCA restricts credit growth of the banks. In the last financial year, RBI had put 11 PSBs under the radar of PCA. Currently only 5 PSBs fall within the purview of PCA. The amount is majorly going to be to help banks accelerate out of NPA and therefore out of PCA to boost credit growth in the banks. Because if the big PSBs fall within the PCA, the burden of lending is on smaller banks which disrupts the whole banking system.
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