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Shaktikanta Das defends placing Lakshmi Vilas under PCA

Based on each trigger point, the banks have to follow a mandatory action plan.

ET Bureau|
Oct 05, 2019, 07.48 AM IST
RBI decides on putting a bank on PCA depending on several parameters like NPA, RoA and CAR.
Governor Shaktikanta Das defended the Reserve Bank of India’s (RBI) move to put Lakshmi Vilas Bank (LVB) in the so-called prompt corrective action (PCA) category on Friday, but ducked questions on whether it would approve the plan to merge the lender with Indiabulls Housing Finance.

Replying to a question after the monetary policy announcement, Das said a bank is put under PCA as a corrective measure and this is a regulatory tool used by the RBI for a long time.

“Where PCA is appropriate RBI will use the PCA framework. Recently we have placed one private sector bank in our PCA framework. This framework is nothing new. In the past, RBI has put banks under PCA to ensure that timely steps are taken to bring the bank back on rails. When there are certain deviations from regulatory framework, we put a bank under PCA and it involves that the bank is required to take certain steps to correct those regulatory deviations or deficiencies therefore this is nothing new. It is a corrective measure and that is how it should be seen,” Das said.

RBI decides on putting a bank on PCA depending on several financial parameters like capital adequacy ratio, non-performing assets (NPA) and return on assets (ROA). Based on each trigger point, the banks have to follow a mandatory action plan.

Banks under PCA face certain restrictions like reduction in lending to large companies and focus on reducing the concentration of loans to certain sectors. They are also restricted from opening new branches and paying dividends. They also cannot start new lines of business.

Late night on September 27, LVB informed the stock exchanges that it has been put under PCA due to high level of NPAs, lack of sufficient capital to manage risks and negative return on assets for two consecutive years. The RBI action cast a shadow over the proposed merger of the lender with Indiabulls Housing Finance, which is awaiting RBI nod.

Asked specifically whether the PCA action against LVB means that the deal with Indiabulls will not go through, Das said he would not comment on individual proposals before the central bank.

“No. I think it is a speculative question and as long as the decision is given out in the public domain, it is not correct on our part. As long as we decide and let out the decision in public domain I would not like to comment on these individual proposals,” he said.

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