The government approved Rs 48,239 crore capital infusion into 12 public sector banks (PSBS) to help them maintain regulatory capital requirements and finance growth plans.It takes the total infusion into government banks to nearly Rs1 lakh crore so far this fiscal year.
This capital infusion has a fourfold objective: (i) bringing the better-performing banks currently in the Prompt Corrective Action (PCA) category out of it, (ii) helping those that have recently come out of PCA to stay out of it, (iii) equipping non-PCA banks to meet regulatory requirements, and (iv) helping the remaining PCA banks to meet their requirements as well.
PCA is a process or mechanism to ensure that banks don’t go bust.Under it, RBI has put in place certain risk thresholds to assess, monitor, control and take corrective actions on banks which are weak and troubled.
The PCA is invoked when certain risk thresholds are breached. There are three risk thresholds which are based on certain levels of asset quality, profitability, capital and the like.The third such threshold, which is maximum tolerance limit, sets net NPA at over 12% and negative return on assets for four consecutive years.