Nine PSU banks who are under the close surveillance by the central bank have submitted a recovery plan to the government. The PSU banks have been under the vigilance of the Reserve bank of India due to their poor financial health. They have reportedly submitted a two-year recovery plan to the government. The plan talks about the needed stake sale in the subsidiaries and also about the lessening of the corporate loan book.
It was the Finance Minister Piyush Goyal who had demanded these 11 PSU banks in the last month to offer them with a plan that can strengthen the current finances and also cater to the Reserve bank of India’s capital adequacy rules. Out of the 11 banks, 9 banks have already provided the required report to the Department of Financial Services, as per the latest news.
As on June 15th, Dena bank share price is Rs. 16.70, Allahabad bank share price is Rs. 44.15 and the UCO bank share price is Rs. 19.20
Those 11 banks which fall under the Prompt Corrective Action [PCA] are:
- Dena Bank
- Allahabad Bank
- United Bank of India
- Corporation Bank
- IDBI Bank
- UCO Bank
- Bank of India
- Central Bank of India
- Indian Overseas Bank
- Oriental Bank of Commerce
- Bank of Maharashtra.
Since they are under the PCA, these banks will have certain restrictions like on distributing dividends and remitting profits. It is possible that the owner may be asked to suffuse capital into the lender. Also, the lenders are not allowed to expand their branch networks and they will have to maintain higher provisions. Under PCA, the management compensation and director fees are also capped.
As per the recovery plan these banks have submitted, they will have to go for the cost cutting, reducing branches size, closing foreign branches, reducing the corporate loan book, and selling the risky assets to other lenders, as per the news.
It was suggested by none other than the Finance Ministry, in the meetings held with the PCA banks, that these banks must think about stake sale in subsidiaries, maintain capital adequacy and conservation buffer. Due to the poor financial state of the PSU banks and also the uncontrolled lending during the Congress rule, FM today said under the current NDA government, we can be hopeful for some real corrective measures which can actually put an end to the banking sector problems.
As per the tweet by the FM, it reads
During the Congress regime, PSU banks gave loans recklessly, which impacted their financial health. Those loans were also restructured to present a distorted picture. The present government has provided the true picture of the health of banks and is now making effort to improve their finances.
It was only in the last year October month that the government had declared its plan of a massive capital infusion of nearly Rs 2.11 Lakh crore which was going to be spread over two fiscals of the financial year of 2018 and the financial year of 2019.