Dismissing rumours, both the government and the Reserve Bank Friday said there was no question of closure of any public sector bank. The decision of the Reserve Bank to initiate a ‘prompt corrective action’ (PCA) against large state-owned lender Bank of India led to rumours that the government may close down some banks.
The RBI in a statement said that it has come across some “misinformed communication” circulating in some section of media, including social media, about closure of some public sector banks in the wake of their being placed under the PCA. The government too dismissed such rumours saying that on the contrary it is planning to strengthen the state-owned banks. “No question of closing down any Bank. Government is strengthening PSBs by 2.11 lakh crore recapitalisation plan. Do not believe rumour mongers. Recap, Reforms roadmap for PSBs firmly on track,” said financial services Secretary Rajeev Kumar in a tweet.
The RBI, on its part, clarified that “the PCA framework is not intended to constrain normal operations of the banks for the general public”. The central bank had issued a similar clarification in June also. It emphasised that the PCA framework has been in operation since December 2002 and the guidelines issued on April 13, 2017 are only a revised version of the earlier framework.
Besides Bank of India, the RBI has also initiated similar action against other public sector banks including IDBI Bank, Indian Overseas Bank and UCO Bank.
The RBI said that under its supervisory framework, it uses various measures/tools to maintain sound financial health of banks. “PCA framework is one of such supervisory tools, which involves monitoring of certain performance indicators of the banks as an early warning exercise and is initiated once such thresholds as relating to capital, asset quality etc. are breached,” it said. The objective is to facilitate the banks to take corrective measures including those prescribed by the RBI, in a timely manner, in order to restore their financial health.
The framework also provides an opportunity to the RBI to pay focused attention on such banks by engaging with the management more closely in those areas. “The PCA framework is, thus, intended to encourage banks to eschew certain riskier activities and focus on conserving capital so that their balance sheets can become stronger,” the RBI added.