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Indian central bank dismisses rumors about bank closures

India's central bank dismissed rumors about the potential closure of some public sector banks and said its supervisory tool, the prompt corrective action framework, is not intended to constrain normal operations of banks for the general public.

The rumors emerged after the Reserve Bank of India put Bank of India under the PCA framework and directed United Bank of India to take additional corrective actions in view of its high level of bad debts, low leverage ratio and capital needs.

In a Dec. 22 statement, the RBA clarified that the PCA framework's objective is to facilitate banks to take corrective measures in a timely manner to restore their financial health. Further, it is intended to encourage banks to avoid certain riskier activities and focus on conserving capital to keep their balance sheets strong.

The statement follows the circulation of some "misinformed communication" about closure of some public sector banks, the central bank said.