Oracle IAS, the best coaching institute for RBI grade B/NABARD/SEBI in Dehradun (Uttarakhand), brings to you views on important issues.
==> Context
• The Centre has sought Parliament’s approval to infuse an additional ₹41,000 crore into public sector banks that are starved of precious capital to remain afloat.
• Along with another ₹42,000 crore that is already budgeted for infusion, this tranche will take the total planned funds infusion into banks this year to ₹83,000 crore.
• Mission Indradhanush is a scheme of GOI for revamping the banking sector.
==> The PCA framework
• The latest fund infusion is aimed, among other things, to help a number of public sector banks to climb out of the Reserve Bank of India’s Prompt Corrective Action (PCA) framework.
• As many as 11 public sector banks have been stopped from lending freely by the RBI under the PCA framework due to their poor financial health.
- RBI introduces Prompt Corrective Action when the Bank’s financial conditions worsen below certain limits (trigger points).
- The limit set are in the form of three conventional financial indicators which are called trigger points– CRAR, Net NPA and Return on Assets.
- Trigger points implies the RBI imposes corrective action in accordance with the level of trigger points.
==> Way forward
• The idea of infusing more money into banks is not bad per se, given that they are grappling with inadequate capital, a lot depends on how and to which banks this money is distributed.
• This is where the government has to exercise prudence and caution.
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