Dismissing rumours surrounding the closure of public sector banks, the Reserve Bank of India (RBI) on Friday clarified that that there was no question of shutting down any bank.
Rumours about adverse financial strength of some public sector banks started swirling when the RBI initiated a ‘prompt corrective action’ (PCA) against large state-owned lender Bank of India.
“The Reserve Bank of India 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 Prompt Corrective Action (PCA) framework,” it said.
Clarifying its stance, the central bank drew attention to the press release issued in June, which said: “The Reserve Bank has clarified that the PCA framework is not intended to constrain normal operations of the banks for the general public.”
Maintaining that it uses various measures to maintain sound financial health of banks, the RBI underlined the importance of the PCA framework, insisting that it is intended to encourage banks to eschew certain riskier activities and focus on conserving capital.
“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. Its objective is to facilitate the banks to take corrective measures including those prescribed by the Reserve Bank, in a timely manner, in order to restore their financial health,” the RBI said.
“The framework also provides an opportunity to the Reserve Bank to pay focussed 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,” it added.
Emphasising that the PCA framework has been in operation since December 2002, the RBI said the guidelines issued on April 13, 2017 is only a revised version of the earlier framework.”
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