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.
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.