Lending
to the corporate sector, particularly small and medium enterprises, is becoming
increasingly difficult with more than half the country’s public sector banks(PSBs) now under the RBI’s Prompt Corrective Action (PCA) framework, which
restricts lending activities of the banks, government sources said. Government sources also confirmed
that at least three-four more banks are expected to be brought under the PCA
framework because of deteriorating performance.
“Since the PCA framework
restricts the amount of loans banks can extend, this will definitely put
pressure on credit being made available to companies especially the MSMEs.
Large companies have access to the corporate bond market so they may not be
impacted immediately,” a senior banker said.
At present, 11 weak PSBs out of
the 21 State-owned banks are under the PCA, which kicks in when banks breach
regulatory norms on issues such as minimum capital, amount of non-performing
assets and return on assets. The RBI enforces these guidelines to ensure banks
do not go bust and follow prompt measures to put their house in order.
In a report last month, rating
agency ICRA said that five more banks could be brought under the PCA. These
include Canara Bank, Union Bank, Andhra Bank, Punjab National Bank, and Punjab
& Sind Bank.
The 11 banks already under the
NPA framework are IDBI Bank, Bank of India, UCO Bank, Central Bank of India,
Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank, Bank of
Maharashtra, United Bank of India, Corporation Bank and Allahabad Bank.
Sources said it may take these
banks at least another 6-9 months before they report any noticeable improvement
in the key regulatory indicators, which will help them come out of PCA. The RBI tightened its PCA
framework in April 2017 to turn around lenders with weak operational and
financial metrics, and since then 11 banks have been moved to PCA. Depending on
the risk thresholds set in PCA rules, the banks are restricted from expanding
the number of branches, staff recruitment and increasing the size of their loan
book. Other restrictions include higher provisions for bad loans and disbursal
only to those companies whose borrowing is above investment grades.
The government in January had
allocated a bigger chunk of capital of Rs 52,311 crore to 11 weak banks to
maintain their minimum capital requirement while nine strong banks were given
Rs 35,828 crore. Last October, the Finance Ministry had announced plans to
inject Rs 2.11 lakh crore of equity in PSBs – comprising Rs 1.35 lakh crore
through recapitalisation bonds, Rs 18,000 crore from budgetary resources and Rs
58,000 crore to be raised by the banks from the market.
While RBI data shows credit
off-take for micro and small enterprises and medium-scale companies
deteriorated significantly post demonetisation, micro and small scale
industries have seen some improvement in demand for credit from scheduled
commercial banks over the last 5-6 months.
While credit growth to micro and
small scale industries contracted by 7.7 per cent and 8.2 per cent in November
2016 and December 2016, it remained negative or mildly positive till August
2017. The growth rates in November 2017, December 2017 and January 2018 were
better and stood at 4.6, 7.2 and 6.9 per cent.
Medium-scale industries continue
to remain under pressure and credit growth is still negative even as gross bank
credit growth for November, December and January has been over 8 per cent. Bankers feel that if more
state-owned banks are brought under PCA, it will impact the credit availability
for the MSME segment.
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