Lok Sabha Question No. 670 (UNSTARRED), answered on 2018-07-20
Subject: Prompt Corrective Action Norms
Ministry: FINANCE
Asked by: A. ARUNMOZHITHEVAN

## GOVERNMENT  OF INDIA

## LOK SABHA

## MINISTRY  OF FINANCE DEPARTMENT  OF FINANCIAL  SERVICES

## UNSTARRED QUESTION NO. 670

TO BE ANSWERED  ON THE 20 TH  JULY  2018/ ASHADHA  29, 1940 (SAKA) Prompt Corrective  Action  Norms

## 670.  SHRI A. ARUNMOZHITHEVAN:

Will  the Minister  of FINANCE  be pleased to state:

- (a) whether  the Reserve  Bank  of India (RBI) has enforced  lending  restrictions  on many public  sector  banks;
- (b) if so, the details  thereof;
- (c) whether   the  RBI  had  released   revised   Prompt   Corrective Action   (PCA)   norms classifying  the degree of risk  into  three  categories;  and
- (d) if so, the details  thereof  and the steps taken  by  the PSBs on the said directives  of the RBI?

## ANSWER

## Minister of State in the Ministry  of Finance (SHRI SHIV PRATAP  SHUKLA)

(a)  and  (b):  Reserve   Bank of  India  (RBI)  has  informed   that   under Prompt   Corrective Plan,   it  has  enforced   lending   restrictions   on  certain   banks   such  as  restriction   on expansion   of  high   risk   weighted   assets,  reduction   in  loan   concentrations to  stressed sectors,  industries  or corporate,  restrictions  on fresh credit  to unrated  borrowers, etc. (c) and (d): The Prompt  Corrective  Action  (PCA)  framework  for commercial  banks  was first  prescribed, vide circular  dated December  21, 2002. This  framework  was reviewed  and the revised  PCA  framework  for Commercial  Banks was put in place on April  13, 2017

The key  areas for monitoring  banks  under the revised  PCA framework  continue  to be capital,  asset quality  and profitability while  leverage  is monitored  additionally as  part   of PCA framework.   The  indicators   tracked   for  capital,   asset  quality   and  profitability are CRAR/Common  equity  Tier  1 ratio,  Net NPA  ratio  and Return  on Assets respectively. Risk  thresholds  1, 2 and 3 have been defined, breach  of which,  result in invocation  of PCA and  certain  mandatory  and discretionary actions.

making  it effective  from  April  1, 2017.

The objective  of the PCA  framework  is to facilitate  the banks  to take  corrective  measures including  those prescribed  by  the Reserve  Bank,  in a timely  manner,  in order  to restore their   financial   health.   The   framework also  provides   an  opportunity to  the  RBI  to  pay focussed  attention   on  such  banks   by   engaging   with   the  management   more   closely   in those areas. The PCA  framework with prescription of certain mandatory and discretionary actions,   is  thus, intended   to  encourage   banks   to  eschew   certain   riskier activities   and  focus  on  conserving   capital so  that   their   balance   sheets  can  become stronger.

PSBs have reportedly  taken  several  initiatives  so as to improve  their  respective  degree of risk  under Capital  ratios,  Net  NPA  and ROA.  Some of the steps taken  by  PSBs include, inter  alia, rationalisation of  risk   weights,   establishment   of  Stressed  Asset  Management Verticals,   review   of  NPA   accounts   and  prompt   action  initiation for  recovery   for restricting slippage, activation of Asset Recovery Management(ARM) branches, improvement  in provision   coverage   ratio   thereby   improving   net  NPA   ratio,   increasing CASA   ratio, improving   coverage   of  digital banking,   initiating expenditure   control measures,   sale  of  non-core   assets,  explore   the  possibility to  sell  its  unused   immovable properties  to unblock  its resources,  focus on recovery,  etc..

The banks under PCA  are subjected  to close monitoring  through  monthly  monitoring  of various   financial   metrics   and  quarterly meetings   of  the  top  management   of  the  banks with  the senior  management  of RBI. The continuous  monitoring, focussed attention  and close  engagement   with   the  top  management   of  these  banks   is  aimed   at  restoring   the financial  health of  the banks.