Prelims Level
Mains Level
Prelims Syllabus : Economy Mains Syllabus : Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

In News:

  • The government has approved the disbursal of a recapitalization package of Rs. 48,239 crores for 12 public sector banks.

Explained:

  • The government will infuse Rs 9,086 crore in Corporation Bank and Rs 6,896 crore in Allahabad Bank — the two “better-performing” banks currently under the Prompt Corrective Action (PCA) supervision of the RBI.
  • Further, Rs 4,638 crore and Rs 205 crore will be provided to Bank of India and Bank of Maharashtra. These banks have recently come out of the regulatory supervisory framework PCA of the RBI.
  • Punjab National Bank will get Rs 5,908 crore, Union Bank of India Rs 4,112 crore, Andhra Bank Rs 3,256 crore and Syndicate Bank Rs 1,603 crore.
  • The government will pump in Rs 12,535 crore in four other banks under PCA — Central Bank of India, United Bank, UCO Bank and Indian Overseas Bank.
  • The government in December had infused Rs 28,615 crore into seven public sector banks (PSBs) through recapitalization bonds.
  • The latest recap bonds broadly fall into four categories – equipping better-performing PCA banks to be above regulatory PCA thresholds to help them come out of the framework (Allahabad Bank, Corporation Bank);
  • Non-PCA banks that are close to the red line to ensure they don’t fall into PCA (Punjab National Bank, Union Bank, Syndicate Bank and Andhra Bank);
  • PCA banks that have exited PCA to remain above PCA triggers (Bank of India, Bank of Maharashtra), And other PCA banks that need to meet minimum regulatory capital norms (Central Bank, United Bank, UCO Bank and Indian Overseas Bank).
  • It may be recalled that three banks – Bank of Maharashtra, Oriental Bank of Commerce and Bank of India – had, on January 31, come out of the PCA framework.

Need for PCA framework:

  • Due to the adverse impact on the economy, medium sized or large banks are rarely closed and the governments try to keep them afloat.
  • If banks are not to be allowed to fail, it is essential that corrective action is taken well in time when the bank still has adequate cushion of capital to minimize the losses. If these asset stressed banks are not properly taken care off then its bankruptcy will create a chain reaction in the economy setting off job losses, share market down and loss of credibility in public sector banks.
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