The Finance Ministry has made a case with the Reserve Bank of India (RBI) for tweaking the ‘Return on Assets’ parameter under the Prompt Corrective Action (PCA) framework.
Any moderation in the RoA parameter could enable at least four public sector banks to come out of the PCA framework and allow them more operational flexibility, the Department of Financial Services (DFS) has submitted.
This suggestion came up during the DFS organised meeting with chief executives of public sector banks’ here on Monday, sources in the banking industry said.
The RBI Governor Shaktikanta Das addressed the Chief Executives of PSBs in the morning, while the interim Finance Minister Piyush Goyal addressed them later in the evening.
Currently, banks having negative RoA for certain consecutive years are brought under PCA framework.
As on date, 11 of the 20 public sector banks in the country are under the RBI’s PCA framework.
It is believed that a moderation of RoA parameter could benefit Bank of Maharashtra, Bank of India, Oriental Bank of Commerce and Corporation Bank to begin with and help them come of PCA framework.
Regulatory trigger points
Under the PCA framework, the RBI has specified certain regulatory trigger points in terms of three parameters — capital to risk weighted assets ratio (CRAR), net non-performing assets (NPA) and Return on Assets (RoA), for initiation of certain structured and discretionary actions in respect of commercial banks hitting such trigger points.
The main objective of PCA is to alert the banking regulator (RBI) about a bank heading for trouble. It helps RBI take corrective measures to restore financial health of a bank.