These Five Banks May Slip to RBI’s Prompt Corrective Action Plan (PCA)

Reports from rating agency ICRA stated that Five Public Sector Bank’s Canara Bank, Punjab National Bank, Union Bank of India, Andhra Bank and Punjab & Sind bank may put under Prompt Corrective Action Plan (PCA) due to recall of Rs 157-bn AT-1 bonds. These five public sector banks as per Rating agency ICRA ,their net non-performing assets (NPAs) rose above 6 per cent in December 2017. As per the requirement of RBI to put under NPA minimum requirements of CAR or net NPAs rise above 6 per cent or the RoA is negative for two years. 

What is AT-1 Bonds ?

AT-1 bonds are no maturity date bond but continue to pay the coupon forever. AT-1 issuer banks has the option to call back the bonds or repay the principal after a specified period of time.

RBI PSBs PCA

Major highlights of ICRA analysis

  1. Public sector banks have raised total of Rs 603.85 billion in the last four years, majorly through AT-1 bonds and achieved their Tier-1 capital ratios.
  2. Many of these PSB’s raised AT-1 bond despite of losses, increasing capital requirements under Basel-III, and limited capital infusion by the government in relation to their requirements.
  3. The Capital ratios of these banks may reduce by 0.7-2.0 per cent of risk weighted assets.

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