The Union Ministry of Finance has directed six Public Sector Banks (PSBs), currently under the Prompt Corrective Action (PCA) to show improvement on seven parameters, in a bid to receive Centre’s support.
Out of the total 11 public lenders put under PCA last year, three have improved their position and moved out if the list while another two will amalgamate with a stronger entity.
Centre’s direction to the remaining six in the list would enable the lenders to improve their position and come out of the list.
“We have told these banks to improve upon net interest margins (NIMs), CASA (current account savings account), RWA (Risk Weighted Assets), NPA recognition, divergence (disparity in loan recognition), operating profit and non-core asset selling to be able to get our support for being out of the PCA,” said official sources.
The recapitalisation infused by the Centre has helped the banks in meeting their tier -1 core capital requirements. According to the Basel III norms, all banks are mandated to meet both risk-based capital minimum Common Equity Tier 1 (CET1) requirement of 4.5 percent as well as the target level CET1 requirement of 7 percent.
The capital invested by the Centre in the banks is done in a bid to inflate provisions and bring down the net Non-Performing Assets ratio enabling the Reserve Bank of India (RBI) to lift the restrictions on three PSBs namely Bank of Maharashtra, Bank of India and Oriental Bank of Commerce.