UCO Bank Out of PCA Framework
(Updated chart on 21Sep2022, with Central Bank of India out of the PCA Framework, at the end of the article)
On 08Sep2021, India's central bank Reserve Bank of India took out a public sector bank namely, UCO Bank, out of RBI's Prompt Corrective Action (PCA) Framework taking into consideration some improvements made by UCO Bank in certain business metrics. It may be mentioned that UCO Bank was put under PCA by RBI in May 2017.
As of now, only two banks are still in the RBI's PCA Framework--they are Central Bank of India and Indian Overseas Bank, both state-owned banks.
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----------------------------Introduced in 2002, PCA Framework is a regulatory action whereby RBI puts weak banks under lending / other restrictions, so that the weak banks' future health will improve. A weak bank will be subject to this arrangement based on certain parametres, like, capital adequacy, profitability, asset quality and leverage.
It is interesting to note that there were 11 banks (all public sector banks or PSBs) under PCA mandate as of December 2018 (when total PSBs were 21). And now there are only two banks under PCA, as mentioned above. The list of PCA banks shrivelled from 11 to two!
So what magic had occured in the past three years that resulted in nine PSBs coming out of the PCA mandate? RBI governor change happened. On 10Dec2018, Urjit Patel resigned as RBI governor. On 12Dec2018, Shaktikanta Das replaced Urjit Patel as RBI governor.
Within 11 weeks of his taking over, RBI under Shaktikanta Das removed five banks out of the PCA mandate. Dena Bank's amalgamation with Bank of Baroda effective 01Apr2019 took the former out of the PCA, without any action by the RBI. In another round of mergers, Oriental Bank of Commerce was amalgamated with Punjab National Bank effective 01Apr2020--as such the former too was out of PCA through the amalgamation route.
In 2021, IDBI Bank and UCO Bank were taken out of PCA. IDBI Bank is technically a private bank now, which is a separate issue.
Detailed timeline of PCA Framework is given below: Table 1:
Banking experts may not agree with my viewpoint with regard to RBI's abrupt actions in weakening the foundations of PCA regulations. But the circumstances that surround the PCA regulation compel me to believe that people at the helm decide on what to regulate, when to regulate and when to look elsewhere.
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Appendix 1: Public sector banks that were under PCA framework as of December 2018:
Appendix 2: List of PSBs as on 25Sep2021:
Appendix 3: Details of recent Bank amalgamation / merger in recent years:
P.S. 2: Update 21Sep2022: On 20Sep2022, RBI removed Central Bank of India from the PCA Framework. Now, no more PSBs are in the PCAF. See updated image
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P.S. 1: Update 29Sep2021: On 29Sep2021, RBI removed Indian Overseas Bank from the PCA Framework. Now, the only public sector bank (PSB) under PCA is Central Bank of India. See updated image >
References:
Tweet thread dated 06Oct2015
Disclosure: I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial products discussed, if any.
Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.
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