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To tackle bad loans: RBI brings Bank of India under PCA, initiates fresh measures on United Bank of India

High net NPA, insufficient CET1 Capital and negative return on asset displayed by BoI for two years.

By: ENS Economic Bureau | Mumbai | Published: December 21, 2017 2:09 am
RBI brings Bank of India under PCA, initiates fresh measures on UBI The RBI has initiated prompt corrective action (PCA) measures against Bank of India in the view of its high non-performing assets (NPAs) and insufficient capital.

The Reserve Bank of India (RBI) has announced fresh measures against Bank of India (BoI) and United Bank of India (UBI) to tackle rising bad loans. The RBI has initiated prompt corrective action (PCA) measures against Bank of India in the view of its high non-performing assets (NPAs) and insufficient capital.

The RBI placed the lender under PCA on Tuesday, consequent to the onsite inspection under the risk-based supervision model carried out for year ended March 2017, a BSE filing said. “This is in view of high net NPA, insufficient CET1 Capital and negative ROA (return on asset) for two consequent years,” the bank said on Wednesday.

“This action will contribute to the overall improvement in risk management, asset quality, profitability, efficiency of the bank.” PCA is a regulatory mechanism that allows the central bank to issue directions on reducing bad debt at lenders.

United Bank of India (UBI) on Wednesday said the RBI has prescribed additional actions under its prompt corrective action measures against the bank over its high level of bad loans, low leverage ratio and capital needs. The RBI, based on the assessment of the bank’s position as on March 31, has ordered UBI to undertake a slew of actions focused on “profit retention” as well as raising capital, adding more provisioning against bad loans and controlling costs, the bank said.

The action against UBI came after the RBI had last issued a “prompt corrective action” against UBI in 2014. UBI said the latest actions were “not likely to have any material impact” on its performance, and were “well complimenting the steps already taken” by its management.

Last week, the RBI initiated PCA against state-run lender Corporation Bank. The bank’s net non-performing loans have crossed 10 per cent and it incurred a loss of Rs 1,035 crore in the second quarter of fiscal 2018. While the bank’s capital adequacy ratio is at 10.23 per cent, it needs to sustain at the level of 10.87 per cent for March 2018.

Earlier, PCA was enforced on Bank of Maharashtra, Central Bank of India, IDBI Bank, Indian Overseas Bank, UCO Bank and Dena Bank.

The RBI initiates PCA when a bank falls short of certain regulatory requirements such as minimum capital, returns on asset and size of non-performing assets. In April, the RBI said that capital, asset quality and profitability would be the basis for the PCA framework on which the banks would be monitored and has defined three kinds of risk thresholds.

“The PCA framework would apply without exception to all banks operating in India, including small banks and foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators,” the RBI had said.

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