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Monday, March 5, 2018

"Prompt Corrective Action" Written by Sri Sibu Kumar Das

Appeal to all to escalate it to RBI

There is a news item in financial daily BS that '5 more banks face PCA'. The banks under reference are Canara Bank, Union Bank, Andhra Bank, PNB(now, the acronym in wellknown pan-India) & Punjab & Sind Bank.

Now what is this PCA?

PCA is Prompt Corrective Action. This is a framework, a supervisory tool in the hands of RBI, which involves monitoring of certain performance indicators of the commercial banks as an early warning exercise and it is initiated once such thresholds as relating to capital(CRAR or CAR), asset quality(NNPA i.e. Net Non Performing Assets) and profitability(RoAs i.e. Return on Assets) are breached.

The objective of PCA is to restore the financial health of the banks. It has been in operation since 2002, with time-to-time updation and revision in  norms. Leverage of business is also monitored additionally.

Well, fine. A regulator/supervisor has to do it. But is there any bank in Public Sector which can be thought of to be outside the purview of PCA, if the norms PCA are meticulously followed?

 I hope, there is a need to establish a separate department for PCA at RBI; as 11 PSBs already there and 5 more knocking(as per the news item) and remaining all the PSBs lined up post-March!


The purpose of the post is to show promptness of the 'prompt' corrective action !

An old saying goes, "A stitch in time saves nine".

I will cite one case, the case that has prompted many in the Govt.to propagate how good is privatization for these banks as well as in RBI which has woken up to its responsibilities as a regulator/supervisor !

Yes, PNB!

When the fraud at PNB  was detected, with such a huge OBE (Off-Balance Sheet) exposure over the years, what was the required CAR?


Has PNB been asked to calculate their revised CAR over the years vis-a-vis the exposed exposure?

At least, on this single count, the so-called PCA is overdue, taken retrospective.

And yet, PNB is not already under PCA! It goes to show how prompt is the "Prompt Corrective Action"

Written by SriSibu Kumar Das

What I feel is as follows.

There is no doubt that each and every public sector bank is in critical health . The idea of putting a bank in PCA category is to make best possible effort to cure  sick banks promptly.  But in fact the body supposed to cure these banks itself appear to be more sick and need to be placed under ventilator.

Regulating agencies were sleeping for decades in the name of  liberalisation and globalisation  and specifically for reformation and transformation of PSU banks into a solid global bank.

Unfortunately, the policy of so called reformation made these banks worse than what they used to be before the beginning  of liberalisation era in 1991.

I have been writing to officials of  RBI and other agencies for last ten years but people sitting at top of affairs never thought it necessary to peep into health of banks.  They under rule  of UPA government led by Congress Party thought it wiser and safer to ignore all good advices coming to them from various corners. They thought it better and comfortable to become silent spectators of Draupdi Chirharan ( here PSU banks are Draupdi).

Even majority of vetern trade union leaders who were supposed to take care of interest of working class I.e. bank employees,  became partners of top officials of  bank management in allowing them to loot banks fund in the name of growth.. Top officials of banks became rich and ground level bank staff slowly and gradually became slave or yesmen  of these looters and exploiters to ensure their survival, their posting at choice places, their fast promotions and also for earning fast money using lending powers and compromise  tactics with bad borrowers. Trade union leaders in general became saviours of corrupt bank employees and damagers of good employees.

Numerous cases of frauds and bad debts came to light during last ten years. But the then government officials AND ministers who were responsible to protect banks from inherent  risk were in fact contributor to RISK.  The great writer Sri Munsi  Prem chand said long ago " jab rakshsk hi bhakshak ban jaye to vinas nischit hai". It means destruction is inevitable when protectors become looters and spoilers.

Rulers of this country promoted, propagted and  irrigated culture of bribery and flattery only. And this evil culture killed honest AND sincere performers in all offices and all Public sector undertakings including banks.

During seventies  and eighties bankers used to fear RBI inspectors and auditors. With passage of time this fear vanished because inefficient and corrupt persons were given such key responsibilities.

RBI slowly stopped auditing and started trusting false and fabricated certificates of compliance submitted by banks. A culture of  manipulation  and window  dressing became the accepted culture at all levels.

Persons who talked of rules and policies used to be posted at remote and critical places to shut thrir mind for ever. Vigilence officers AND ombudsmen  were chosen  ftom lot of inefficient incapable AND corrupt officials.

God can only save banks now. There is however  no doubt that Sri Narendra  Modi led NDA government  is doing its best to improve health of  sick banks. But how far they will succeed in this Himalayan task depends on many factors.

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