By Express News Service
MUMBAI: The Reserve Bank of India cracked the whip on two state-run banks initiating Prompt Corrective Action (PCA) on Bank of India (BoI) and United Bank of India (UBI).
With this, the RBI has put at least 10 lenders under the scanner, imposing restrictions on lenders including issuing of fresh loans and dividend distribution.
According to BoI, RBI’s action comes after its on-site inspection under the risk-based supervision model carried out for the year ended March, 2017.
“This is in view of high net NPA, insufficient CET1 Capital and negative ROA (return on asset) for two consequent years. This action will contribute to the overall improvement in risk management, asset quality, profitability, efficiency etc of the bank,” the lender said in a filing with the stock exchanges.
Following the news, shares of BoI slid 4 per cent on bourses on Wednesday. As of March 2017, BoI’s asset quality worsened with gross NPAs at 13.22 per cent as against 13.07 per cent a year ago. Asset quality, however, improved during the second quarter of the current fiscal, with gross NPAs declining marginally to 12.62 per cent of gross advances, from 13.45 per cent the previous year.
Meanwhile, for UBI, the move is unlikely to have a material impact on its performance and instead will improve internal control and ‘intrinsic strength.’ UBI’s net NPAs stood at 10.02 per cent as on March, 2017, but rose to 11.6 per cent as of September, 2017. The Kolkata-based lender was under the PCA framework in 2014, but the restrictions were lifted a year later.
According to the bank, it also signed an MoU with the government to implement corrective measures and, the RBI’s notice was a reiteration of the same. Under the PCA framework, RBI asked the bank to take action on areas like profit retention, capital augmentation, provision coverage, diversification of credit portfolio, rationalisation of expansion and cost control.