Eleven state-run banks under the Reserve Bank of India’s (RBI) prompt corrective action (PCA) framework recorded higher interest income but lower asset quality, even as differences between the government and central bank over the framework have burst out into the open. RBI imposed PCA norms on these banks between February 2014 and January 2018. Under PCA, banks are mandated to cut lending to corporates and focus on reducing concentration of loans to certain sectors. They are also restricted from opening new branches and paying dividends. While the banks remain under the restricted-lending state, they have still been able to garner healthy interest income in the last one year, owing to the decline in deposit rates coupled with their ability to cut bulk deposits. In spite of their worse capitalisation and stressed assets ratio compared to other banks, PCA banks had credit growth that was as strong as that of other banks up until 2014. However, since the asset quality review (AQR) exercise and the imposition of PCA, the year on year growth in advances for PCA banks has declined from over 10% in 2014 to below zero by 2016 and remained in the contraction zone since.

(Live Mint)