Why in the news ?

• The government on Wednesday announced the details of the Rs 2.1 lakh crore recapitalisation plan for public sector banks (PSBs) it had announced in October 2017.

More on news

• The government will infuse a total of Rs88,139 crore into 20 public sector banks which account for more than 80% of the colossal Rs8.4 trillion worth of bad loans.
• The weakest ones—11 lenders under the Reserve Bank of India’s Prompt Corrective Action(PCA) will together receive Rs52,311 crore or the lion’s share of the total amount. These are banks that cannot even meet the regulatory minimum in capital.

• The recapitalisation package would follow a differentiated approach for banks that have been assigned for prompt corrective action and those that have not.
• In financial year 2017­18, the recapitalisation amount for PCA banks would be Rs 52, 311 crore, of which the largest beneficiaries include IDBI (Rs 10,610 crore), Bank of India (Rs 9,232 crore), UCO Bank (Rs 6,507 crore), and Central Bank of India (Rs 5,158 crore).
• The recapitalisation amount for non­ PCA banks for this year is Rs 35,828 crore, with the largest beneficiaries being State Bank of India (Rs 8,800 crore), Punjab National Bank (Rs 5,473 crore), and Bank of Baroda (Rs 5,375 crore).

Way forward

• Lenders will need to play to their strengths and not lend indiscriminately. They will also need to cut down on their hobbies, that is, sell off their non-core assets and rationalize their branches.
• Every bank will need to have a stressed asset vertical for timely recovery and resolution. Most lenders have already put one in place.
• Unless the government distances itself from banks categorically, public sector banks will hardly come out of their habit of being inefficient. The capital infusion makes the government’s hold on banks only tighter.
• Recapitalisation alone cannot be the panacea. It is extremely crucial that the banking reforms are properly sequenced and executed in time.

Prompt Corrective Action (PCA)

• To ensure that banks don't go bust, RBI has put in place some trigger points to assess, monitor, control and take corrective actions on banks which are weak and troubled.
• The process or mechanism under which such actions are taken is known as Prompt Corrective Action, or PCA.
• PCA norms allow the regulator to place certain restrictions such as halting branch expansion and stopping dividend payment. It can even cap a bank’s lending limit to one entity or sector.

Source

·         The Mint, The Hindu and Economic Times.