With the lending to small and medium industries leading to more credit problems, Reserve Bank of India has placed 11 public sector banks under Prompt Corrective Action (PCA) framework, which restricts lending activities of the commercial establishments.
According to a senior banker, ‘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’.
RBI’s action comes after 11 weak PSBs out of the 21 State-owned banks are under performing below their expected lines.
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 the PCA.