RBI orders Dena bank to stop lending, restrictions part of corrective action

The RBI had released revised PCA norms last year and said that if a bank reached the level of ‘risk threshold 3’, it could end up as a candidate for amalgamation, reconstruction or even be wound up.

By: ENS Economic Bureau | Mumbai | Published: May 12, 2018 12:57:06 am
The bank reported loss on annual basis as well, the third year in a row due to ballooning non- performing assets (NPAs). (Express Photo by Pradip Das)

The Reserve Bank of India (RBI) has restricted Dena Bank from “assuming fresh credit exposure” and recruiting staff as part of restrictions imposed under the central bank’s prompt corrective action (PCA), the bank said in a regulatory filing on Friday.

“We wish to inform that the RBI vide their letter dated May 07, 2018 (received by the Bank on May 08, 2018) has restricted the bank from assuming fresh credit exposure and recruitment of staff,” Dena Bank said. Last year, the central bank had imposed PCA restrictions on Dena Bank for high net non-performing assets (NPAs) and negative return on assets (RoA). At least half the listed state-owned lenders have now been put under corrective action including Bank of India, Indian Overseas Bank, United Bank of India, Corporation Bank, Oriental Bank of Commerce, Central Bank, IDBI Bank and Bank of Maharashtra.

The RBI had released revised PCA norms last year and said that if a bank reached the level of ‘risk threshold 3’, it could end up as a candidate for amalgamation, reconstruction or even be wound up. Among the many metrics that are used to gauge how weak a lender is are capital, net NPAs, RoA and Tier 1 leverage ratio.

Under PCA, banks face restrictions on distributing dividends and remitting profits. The owner — government in this case — may be asked to infuse capital into the lender. That apart, lenders would also be stopped from expanding their branch networks. It would need to maintain higher provisions and management compensation and directors’ fees would be capped.

Meanwhile, the bank on Friday reported widening of its net loss to Rs 1,225.42 crore in the March quarter on mounting bad loans and higher provisioning to cover them. The net loss was Rs 575.26 crore in the January-March quarter of 2016-17. Sequentially, the loss widened from Rs 380.07 crore in December of 2017-18.

The bank reported loss on annual basis as well, the third year in a row due to ballooning non- performing assets (NPAs). For the entire fiscal, 2017-18, the bank has posted a net loss of Rs 1,923.15 crore. The bank’s asset quality has worsened with the gross NPAs hitting a high of 22.4 per cent of the gross advances as on March 31, 2018, from 16.27 per cent as of end-March 2017. In value terms, the gross NPAs or bad loans rose to Rs 16,361.44 crore from Rs 12,618.73 crore. Net NPAs were also up at 11.95 per cent (Rs 7,838.78 crore) from 10.66 per cent (Rs 7,735.12 crore). (FE, WIth PTI)

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