The Reserve Bank of India (RBI) may delay taking some state-run lenders out of the prompt corrective action (PCA) framework, due to concerns over capital adequacy.
The banking regulator has questioned the government's capital infusion into the banks through non-interest-bearing or zero-coupon bonds, The Economic Times reported.
The central bank is of the view that capital infusion through these bonds cannot be taken at face value, which means that banks may still be short of regulatory capital, the report said.
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The RBI had not yet responded when contacted by The Economic Times.
The Centre said in March it would infuse Rs 14,500 crore in four public sector banks through zero-coupon bonds - Central Bank of India (Rs 4,800 crore), Indian Overseas Bank (Rs 4,100 crore), Bank of India (Rs 3,000 crore) and UCO Bank (Rs 2,600 crore).
In December 2020, the government has issued Rs 5,500 crore in zero-coupon bonds to recapitalise Punjab and Sind Bank.
The Ministry of Finance and the RBI have differences on capital issuance through zero-coupon bonds and their calculation in capital adequacy ratio, The Economic Times reported
"The government went ahead despite RBI's initial reservations and now the regulator has expressed serious concerns. RBI may not allow banks to treat infusion through such bonds at par value," an official told the publication.
Since the entire fund infusion through such bonds will not count toward regulatory capital, the RBI will keep the banks under the PCA framework.
"RBI is not inclined to pull these lenders out of PCA framework based on such capital infusion," another official said.
"It may further direct lenders to recalculate their capital adequacy ratio based on the actual value of the bonds."