This amount has been made available mainly to improve the financial health of those banks which are under the Prompt Corrective Action (PCA) framework of Reserve Bank of India (RBI).
Government infused Rs 14,500 crore in four public sector banks
The government has infused capital of 14,500 crore rupees in four public sector banks. This capital has been made available mainly to improve the financial health of those banks which are under the Prompt Corrective Action (PCA) framework of Reserve Bank of India (RBI). Indian Overseas Bank, Central Bank of India and UCO Bank are currently under RBI’s PCA Framework. Under this, there are several restrictions including lending, management compensation and fees to directors.
Out of the total amount, Rs 11,500 crore has been made available to the three banks, while the turn amount of Rs 3,000 crore has been made available to the Bank of India. According to the government notification, Rs 4,800 crore has been made available to Central Bank of India, Rs 4,100 crore to Indian Overseas Bank and Rs 2,600 crore to UCO Bank of Kolkata.
These banks will get help in coming out of PCA
The infusion of capital will help these banks to come out of the PCA framework of the Reserve Bank. The capital is raised through non-interest bonds (recapitalization bonds), which have a term of March 31, 2031 and March 31, 2036.
What is PCA Framework
Banks often get caught in financial crisis while doing business. From time to time, the RBI issues guidelines and frameworks to get them out of the crisis. ‘Prompt Corrective Action’ is a similar framework, which determines the financial health of a bank. This framework has been in operation since December 2002 with changes from time to time.
IDBI Bank exits PCA framework
Let us know that after a gap of four years last month, IDBI Bank got out of the ‘Prompt Corrective Action’ (PCA) framework. Due to deteriorating financial situation, the RBI (RBI) put IDBI Bank in the PCA framework in May 2017. In March 2017, the NPA of the bank exceeded 13 per cent.
Reserve Bank Offers 1.2 Lakh Crore Short Term Loan Facility
The Reserve Bank has set a loan limit of Rs 1.2 lakh crore in the first half of the year 2021-22 to the central government to deal with the short-term requirements of its daily expenditure. The central bank lends directly to governments under Ways and Means for Lending (WMA) to deal with short-term cash shortfalls in everyday spending.
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