Finance Minister to invest Rs 14,500 Cr in banks under RBI’s Prompt Corrective Action framework

New Delhi. The Ministry of Finance will invest Rs 14,500 crore of capital in the next few days in the public sector banks, which are currently under the Prompt Corrective Action (PCA) framework of RBI. The Finance Ministry can infuse Rs 14,500 crore in the next few days, mainly in the banks that are under the RBI’s PCA rules. This decision has been taken to help the banks financially.

Indian Overseas Bank, Central Bank of India and UCO Bank are currently in the PCA framework, due to which they are subject to various restrictions. These include non-lending, management compensation, and directors’ fees, etc.

Capital of 5,500 crores was poured in November last year
Sources said that the ministry has identified banks to give capital. The capital will be poured in the next few days. This will benefit the banks which are under prompt corrective action. The government has allocated capital of Rs 20,000 crore for the current financial year to meet regulatory requirements in public sector banks. Punjab and Sindh Bank, out of 12 public sector banks, had a capital of Rs 5,500 crore in November last year.

The capital infusion will help these banks to come out of the Reserve Bank of India’s enhanced regulatory supervision or PCA framework.

Most of the large state-owned lenders  including State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, Union Bank of India, and Indian Bank  have already raised money from various market sources, including share sales on a private placement basis.

RBI has removed IDBI Bank from the Prompt Corrective Action (PCA) framework. This week, IDBI Bank was relieved of the PCA ban of RBI after nearly four years on the basis of improvement in financial performance. Due to the deteriorating financial situation, the RBI has put IDBI Bank in the PCA framework in May 2017.

What is PCA Framework?
When banks do business, they get caught in a financial crisis. From time to time, the RBI issues guidelines and frameworks to get them out of the crisis. Prompt Corrective Action is a similar framework that determines the financial health of a bank. This framework has been in operation since December 2002 with changes from time to time.