PCA limited losses and saved taxpayers money: RBI

The Reserve Bank of India deputy governor Viral Acharya has said that the Prompt Corrective Action (PCA) taken by the central bank against 11 public sector banks and one private bank has limited the losses of these banks and saved taxpayers’ money.

According to Acharya, “an important objective of the PCA is to first and foremost limit further losses and prevent erosion of bank capital, creating a platform of stability for the bank, and in turn, setting the stage for structural interventions to be implemented and pushed through.”  Acharya justified PCA stating that without it, some of the banks would gave incurred higher losses and, therefore, would have required more of taxpayers’ money for recapitalisation.

It may be recalled that in October 2017, the Central government had announced recapitalisation package of Rs 2.11 lakh crore for public sector banks, out of which the government was to infuse capital of Rs 1.53 lakh crore and the balance amount was to be raised from the market by March 2019. The 11 public sector banks that needed the recapitalisation package were Bank of India, IDBI Bank, Indian Overseas Bank, Dena Bank, Central Bank of India, Bank of Maharashtra, UCO Bank, Oriental Bank of Commerce, Corporation Bank, Allahabad Bank and United Bank of India. The sole private bank was Dhanlaxmi Bank.

The RBI deputy governor felt the need to justify PCA as the RBI action is facing flak from select quarters on the ground that the PCA has starved the Indian economy of credit. However Acharya refuted the criticism, stating, “There is little factual basis for this assertion, either for the overall economy or at sectoral level. While it is true that PCA banks are experiencing lending contraction on average (in terms of their year on year growth in overall advances), the nominal non-food credit growth of scheduled commercial banks has been close to or above double-digit levels for the past several quarters and with a robust distribution across the sectors of the real economy.” This may be because the reduction in credit growth of the PCA banks may be offset by the credit growth of the healthier banks.

The RBI deputy said that the banks under the PCA are being restored back to health through better capitalisation, preservation of capital, and provisioning for losses.