Banks under PCA see retail loan share jump 400 bps

From 15% in March 2015, share rose to 19% by Sept. 2018

The 11 state-run banks under the Reserve Bank’s prompt corrective action (PCA) framework have seen a 400 basis points increase in their share of retail loans at 19% of the system in the four years ended September 2018, says a report.

The Reserve Bank began to place state-run banks under the PCA framework starting September 2016, when their NPAs soared beyond the regulatory tolerance levels. But the present data is for the period between March 2015 when their retail share was only from 15% and September 2018 when it rose to 19%, according to American brokerage Jefferies.

A report by the brokerage said on Friday it is often misreported that banks under PCA aren’t allowed to grow (gross loans have indeed fallen 10% since March 2015).

“Yet their retail and home loans are up 16% and 53%. Their share of retail loans has risen from 15% in March 2015 to 19% in September 2018, while their share of home loans in retail has climbed from 46% to 61% in the same period,” it said.

The PCA framework puts restrictions on weaker banks on many aspects, including fresh lending and expansion and salary hikes. These banks’ NPAs hover in high double-digits, with that of IDBI Bank being the highest at close to 33% in the September 2018 quarter.

The report, however, said that banks under PCA have lost market share to private sector banks in corporate loans and unsecured personal loans, and that it will be a Herculean task for them to claw back on this front.

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