Bank woes to pass as recovery of bad loans gathers pace

Banks placed under Prompt Corrective Action can be restricted from expanding the number of branches, staff recruitment and increasing the size of their loan book.

Published: 17th August 2018 12:57 AM  |   Last Updated: 17th August 2018 12:57 AM   |  A+A-


Image used for representational purpose only.

Express News Service

NEW DELHI: Financial Services secretary Rajiv Kumar on Thursday said that with the pace and quantum of recovery of bad loans gathering pace, the worst was behind the banking sector. He also stated that he expected banks under the Prompt Corrective Action (PCA) framework of the RBI to get out of it by the end of this fiscal year.

At last count, 11 of 21 public sector lenders are under the framework, with two banks -- Dena Bank and Allahabad Bank -- facing restrictions on business expansion.

In its current form, the PCA framework imposes a range of restrictions depending on the risk assessment. Banks placed under it can be restricted from expanding the number of branches, staff recruitment and increasing the size of their loan book. Higher provision requirements for bad loans may also be imposed.

However, Kumar told reporters that he believed the worst was behind. According to the secretary, “banks have made recovery of Rs 36,551 crore during the first quarter registering a 49 per cent growth over the last fiscal”.

He also pointed out that operating profits of PSBs have risen 11.5 per cent year-on-year in the first quarter and losses reduced by 73. 5 per cent sequentially. Asset quality concerns, he added, had been addressed through falling NPA slippage, while provision coverage ratio (PCR) has improved by 2.2 per cent to 63.8 per cent.

In tandem with measures like the implementation of the Insolvency and Bankruptcy Code (IBC), Kumar stated that these factors would see banks exiting the PCA framework by the end of the fiscal year.

However, “those who are not prudently behaving will have to face the consequences," he pointed out.

Kumar also observed that capital would be infused by the government “as and when they (banks) required.”

“Some of it has already been given. As recoveries are taking place, there is a possibility that some banks will not need it. As of now, there is nobody breaching the regulatory norms. We are committed to maintaining their regulatory capital,” Kumar said.


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