ICRA report on probable PSB’s under PCA – Recall of Rs 157-bn AT-1 bonds may lead five Public Sector Banks under Reserve Bank of India’s (RBI’s) Prompt Corrective Action Plan (PCA). These five public sector banks are Canara Bank, Punjab National Bank, Union Bank of India, Andhra Bank and Punjab & Sind bank. Earlier, With losses during the last three years, 11 out of 21 PSBs have been placed under the PCA framework by the RBI. Prominent among them are Bank of India, IDBI Bank, Central Bank of India, Dena Bank, and Corporation Bank. RBI analyse the capital adequacy ratio (CAR), net NPAs, and return on assets (RoA) for putting any bank under PCA.
Read – What is Prompt Correction Action (PCA) ?
As per Rating agency ICRA these five bank’s net non-performing assets (NPAs) rose above 6 per cent in December 2017. As per the requirement of RBI to put undr NPA minimum requirements of CAR or net NPAs rise above 6 per cent or the RoA is negative for two years.
Read – What are other PSB’s under PCA ?
The Major Impacts
What is AT-1 Bonds ?
AT-1 bonds are such bonds which doesn’t have any maturity date. AT-1 bonds continue to pay the coupon forever. Under these type of bonds the issuing bank has the option to call back the bonds or repay the principal after a specified period of time.
The good part in such type of bonds from investor part is higher yield than secured bonds issued by the same entity. The advantage of AT-1 bonds are:
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