Lok Sabha Question No. 4270 (UNSTARRED), answered on 2021-03-22
Subject: Foreign Banks
Ministry: FINANCE
Asked by: Balashowry Vallabbhaneni

## GOVERNMENT OF INDIA MINISTRY OF FINANCE

## DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA

## UNSTARRED QUESTION NO. 4270

TO BE ANSWERED ON THE 22 ND  MARCH 2021/ CHAITRA 1, 1943 (SAKA)

## Foreign Banks

## 4270. SHRI BALASHOWRY VALLABHANENI:

Will the Minister of FINANCE be pleased to state:

- (a) the  details  of  Prompt  and  Corrective  Action  Plan  prescribed  for  foreign  banks  by  the Reserve Bank of India (RBI);
- (b) the action taken by RBI, if foreign bank reaches to significantly or critically undercapitalized situation;
- (c) the manner in which deposits, etc., of customs of such banks are protected by RBI under FDI Act and other relevant Acts; and
- (d) the manner in which the corrective Action Plan of RBI is different from other countries?

## ANSWER

## THE MINISTER OF STATE FOR FINANCE

## (SHRI ANURAG SINGH THAKUR)

(a):  Reserve  Bank  of  India  (RBI)  has  informed  that  'Revised  Prompt  Corrective  Action  (PCA) Framework'  guidelines  issued, vide circular  dated  13.4.2017,  are  applicable  to  all  scheduled commercial  banks  including  foreign  banks.  Capital,  asset  quality  and  profitability  are  the  key triggers  for  invoking  PCA  Framework.  These  parameters  are  tracked  through  Capital  to  Risk Weighted  Assets  Ratio  (CRAR)/Common  Equity  Tier  1  (CET1)  ratio,  Net  Non-Performing Assets  (NNPA) ratio and Return on Assets. Leverage is monitored additionally through Tier 1 Leverage Ratio as part of the PCA framework.

(b):  As  per  RBI  inputs,  under  PCA  framework,  following  actions  are  taken  related  to  capital position of a bank including foreign bank-

- (i) Detailed Board level review of capital planning;
- (ii) Submission of plans and proposals for raising additional capital; and
- (iii) Requiring the bank to bolster reserves through retained profits

RBI  has  further  informed  that  breach  of  'Risk  Threshold  3'  of  CET  1  capital  under  the  PCA framework, by a bank would identify a bank as a likely candidate for resolution through tools like amalgamation, reconstruction, winding up, etc.

In addition to the above, following actions are taken by RBI under PCA framework, to control credit and market risks, which have bearing on capital position of a bank-

## Credit Risk related actions

- (i) Preparation of time bound plan and commitment for reduction of stock of NPAs,
- (ii) Preparation of and commitment to plan for containing generation of fresh NPAs,
- (iii) Strengthening of loan review mechanism,
- (iv) Reduction in unsecured exposures,
- (v) Reduction in loan concentrations in identified sectors, industries or borrowers.

## Market Risk related actions

- (i) Restrictions on/reduction in borrowings from the inter-bank market,
- (ii) Restrictions on accessing/renewing wholesale deposits/costly deposits.

(c)  RBI  has  informed  that  the  Deposit  Insurance  and  Credit  Guarantee  Corporation  (DICGC) insures  all  bank  deposits,  such  as  savings,  fixed,  current,  recurring  etc.  All  commercial  banks including the branches of foreign banks functioning in India are covered by the Deposit Insurance Scheme. Each depositor in a bank is insured up to a maximum of five lakh.

(d) RBI has informed that no information with regard to corrective action plan of other countries is maintained by it.