Prompt Corrective Action (PCA) is a measure of strict actions that RBI can take against scheduled banks if they do not meet the minimum performance parameters or simply do not comply to the terms and conditions of the scheme. RBI can take discretionary actions against the banks if they hit the trigger points as marked in the scheme. These trigger points are basically the minimum safety measures a bank must maintain for it not to collapse. If those trigger points are hit, RBI may stop such banks from further lending or impose several other restrictions, like not allowing the banks to increase their stake in subsidiaries or to enter new lines of business or lending indiscriminately or making them skip dividend payments.
Much Gung ho shall prevail after the government launches a drive to cleanse the bad loans from banks by taking stricter resolutions on NPA and willful defaulters. The following are the trigger points which led to IDBI and UCO bank facing the brunt of the central bank.
1. CRAR less than 9% but more than 6%
2. CRAR less than 3%
3. CRAR less than 6% but more than 3%
4. Net NPA more than 10% but less than 15%
5. Net NPA more than 15%
6. ROA below 0.25%
While CRAR is an essential criterion, the bigger headache today is the rising NPAs of the Banks.
Effect of high Net NPA %age or Poor CRAR:
RBI can in such a case ask the bank to do the following however RBI is not restricted to only these and may exercise any powers as it deems fit and appropriate ranging from removing the management to changing the board of directors to taking hold of the bank itself. A few measures that RBI can take are:
1. Force bank to take special drive to reduce NPAs.
2. Force bank to review its loan policy.
3. Tell banks to follow suit filed/decreed cases effectively.
4. Upgrade credit appraisal skills.
5. Force bank not to enter new line of business.
6. Ask bank to reduce / skip dividend payments.
7. Reduce stakes in subsidiaries.
8. RBI can order recapitalization.
9. Restriction on inter bank borrowing.
10. Discussion of bank’s board with RBI for corrective actions
11. Can ask to change ownership
12. Can bring in new management or board of directors or both
13. Govt can ask banks to merge if Banks fail to submit recapitalization plan.
14. Guide on Loan review mechanism to be improved.
15. Ask banks not to lend indiscriminately.
The net NPA of some of the scheduled PSBs are listed below:
a. SBI: 3.71%
b. Bank Of Baroda: 4.72%
c. Indian Overseas Bank: 14.30%
d. CANARA: 6.33%
e. Syndicate: 5.21%
f. Vijaya Bank: 4.35%
g. OBC: 8.96%
h. Central Bank of India: 10.20%
i. PNB: 7.81%
j. Corporation Bank: 8.33%
k. Andhra Bank: 6.98%
l. Union Bank: 6.57%
m. Allahabad bank: 8.92%
n. Bank of India: 6.90%
o. Bank of Maharashtra: 11.76%
p. Dena Bank: 10.66%
q. Indian Bank: 4.39%
r. IDBI: 13.21%
s. UCO: 8.94%
t. United bank of India: 10.02%
u. Punjab and Sind Bank: 7.51%
While Vijaya bank has lower net NPA, but BOB stands strong as its CRAR and other parameters stand on a firm ground. While it is to be seen how and what measures RBI will take, but it is sure to come that coming days are tougher for bankers as far as bad debts and recovery are concerned. While the board and management will take a stricter look and more rigid stand on Bad debts, the coming days are also not too velvet like for the willful defaulters.