THIRUVANANTHAPURAM : In a major setback for Kerala Bank, the RBI downgraded it to ‘C’ category and imposed curbs on loan disbursal, following a report by NABARD, the assigned controlling authority.
As per the new classification, Kerala Bank branches cannot issue personal loans above Rs 25 lakh. The RBI also recommended step-by-step recovery of loans provided to customers.
Following the RBI action, the bank has written to its branches on loan disbursal. The letter also says branches that issued loans above Rs 25 lakh should recover the amount step by step.
It’s reliably learnt that the RBI directive has dealt a severe blow to Kerala Bank as a majority of its beneficiaries are those who availed personal loans.
The NABARD ranked Kerala Bank after considering its capital requirement and non-performing assets (NPAs).
The bank faced the setback as it made political appointments in its governing body, resulting in a lack of professionals on board. As per the NABARD report, Kerala Bank’s NPAs exceeded 11%, against the cut off of 7%. Making matters worse, several government agencies too defaulted on payment of dues, resulting in huge losses to Kerala Bank.
Downgrading baseless, says Kerala Bank official
Earlier, then district cooperative banks provided personal mortgage and consumption loans. Post the merger of these entities to form the Kerala Bank in 2019, the latter stopped issuing loans in the same volume. This did not apply to housing and agriculture loans.
A senior Kerala Bank official termed the RBI’s downgrading as baseless, and said every year, NABARD comes up with an audit report and the bank is given an inspection rating, which is confidential communication.
“The RBI has no role in downgrading Kerala Bank to ‘C’ category. The downgrade is applicable only for personal loans. The new directive allowing loan disbursal of Rs 25 lakhs does not apply to cooperative societies and agriculture loans. The Kerala Bank’s top management will come out with a statement after their board meeting in Thiruvananthapuram on Wednesday,” the official told TNIE.