A police officer stands guard in front of the Reserve Bank of India (RBI) head office in Mumbai, India, August 9, 2016. REUTERS/Danish Siddiqui

The Reserve Bank of India, (RBI) India’s central banking institution, which controls the monetary policy of the Indian rupee, placed 11 Public Sector Banks (PSBs) under its Prompt Corrective Action Framework (PCA) in May 2018. Out of the 21 State-owned banks, these 11 have been pushed to PCA because of deteriorating performance, it has been reported. The number is expected to rise. 

IDBI Bank, UCO Bank, Bank of India (BoI), Central Bank of India, Indian Overseas Bank, Dena Bank, Oriental Bank of Commerce (OBC), Bank of Maharashtra (BoM), United Bank of India, Corporation Bank and Allahabad Bank are the banks that have been put under PCA.

PCA imposes restrictions on the amount of loans that can be given by the banks. This results in a situation in which lending to the corporate sector, particularly small and medium enterprises becomes difficult. It also puts on hold branch expansion, dividend payments and orders auditing and restructuring if required. The banks have to show considerable improvement in performance for them to be removed from the Framework. RBI closely monitors the banks and assesses them based on various parameters to make sure that they don’t go bust.

But not much is known about the success rate of this corrective framework that was updated only in April 2017. United Bank of India and Indian Overseas Bank that were put under the framework have not improved much on their Non Performing Assets (NPAs) and have in fact been counterproductive.

Finance Minister Piyush Goyal who is in charge of the Ministry in the absence of Arun Jaitley, held a meeting with the chiefs of the PSUs in May. The Hindu Business Line quoted him as saying, ‘The Centre would over the next few days ensure that every possible support is given to strengthen the resolve of these banks to come out of the PCA framework as quickly as possible.’ However, this has not helped in clearing talks of the banks going bust.