Banks under PCA sitting on cash pile

Commercial banks, under the prompt corrective action (PCA) framework of the Reserve Bank of India (RBI), are sitting on a pile of cash as they don’t have too many options to lend, even as the banking system is scrambling for liquidity. The 11 public sector banks under the PCA, enjoying 25% market share among commercial banks, are facing restrictions on lending while their deposit mobilisation has been healthy. Liquidity deficit The average liquidity deficit in the banking system has been about Rs. 1 lakh crore since October with the shadow banks impacted the most as they are finding it difficult to raise funds following the IL&FS crisis. This, in turn, is affecting the loan market.

“The daily average cash surplus in my bank is about Rs. 20,000 crore to Rs. 25,000 crore,” said the chief executive of a public sector bank which is under the PCA framework. Though deposit mobilisation had picked up, there were restrictions on lending by the bank, the official explained. A senior official from another mid-sized public sector bank said the bank’s daily excess cash was about Rs. 40,000 crore. As a result, the bank’s statutory liquidity ratio (SLR) was about 27-28%, much higher than the RBI mandated 19.5%. SLR is the minimum amount of liabilities that a bank must invest in government securities.

For banks under PCA, the ratio is much higher. “As a result, we have no other option but to invest in government bonds,” another senior official from a public sector bank said. Investments in government bonds is the most risk-free avenue to park funds which, in banking parlance, is known as ‘lazy banking.’ While ‘lazy banking’ refers to the risk averse nature of banks, here, the situation is slightly different as their hands are tied.

Source : https://www.thehindu.com/todays-paper/tp-business/banks-under-pca-sitting-on-cash-pile/article25829613.ece

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