Banks under PCA see 400 bps rise in retail loan share: Study

Chennai: State-run banks under the Reserve Bank’s prompt corrective action (PCA) framework, have seen a 400 basis points increase in their share of retail loans at 19 per cent of the system in four years ending September, says a report.

The Reserve Bank began its work to place 11 State-run banks under PCA framework for the first time in September 2016, when their NPAs soared beyond the regulatory tolerance levels.

But present data is for the period between March 2015 (when their retail share was only from 15 per cent) and September this year (when it rose to 19 per cent), according to American brokerage Jefferies.

The PCA framework puts restrictions on weaker banks on many aspects, including fresh lending and expansion, and salary hikes among others.

Of the 21 State-owned banks, as many as 11 are under the PCA framework now and these banks’ NPAs hover in high double-digits, with that of IDBI Bank being the highest at close to 33 per cent in the September quarter.

The 11 banks under the PCA are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra. These banks together control over 20 percent of the credit market. Among the current crop under the PCA, the first to fall in line was United Bank of India in early 2014.

The report, however, suspects that banks under PCA have lost market share to private sector banks in corporate loans and unsecured personal loans, and that it will be a mammoth task for them affected banks to claw this back.

The report said so far 11 banks are under the PCA framework, but latest data suggest that 17 banks would be classified under PCA, which could be reason for the debate on the framework.

It can be noted that the PCA has been one of the 12 serious breaking points between government and the RBI and a key issued raised in the one of the three letters that the government shot off to RBI on 10 October, under the never-before-used provision of Section 7 of the RBI Act.

At the 19 November RBI board meeting, the board decided to refer the issue of relaxing PCA framework for weaker banks to the Board for Financial Supervision (BFS) of the central bank.

NT Bureau