The Reserve Bank of India has put Bank of India under watch for high bad loans by initiating prompt corrective action against it.
The Reserve Bank of India has put Bank of India under watch for high bad loans by initiating prompt corrective action against it, a move that will place various restrictions on the lender, including on fresh loans and dividend distribution. Earlier, similar action was initiated against other lenders — Dena Bank, IDBI Bank, Indian Overseas Bank and UCO Bank. The bank’s non-performing assets were reported over 6% for two consecutive years.
After the news, Bank of India’s shares tanked nearly 4% to Rs 174.55 intraday on Wednesday. According to PCA framework, banks are assessed on three grounds– asset quality, profitability and capital ratios. Not meeting the requirements in any of these parameters could lead to RBI action on banks.
. The actions could include stricter norms for lending, branch expansion, management change and asset reduction. The RBI has tightened the thresholds — for capital ratios, NPLs, profitability and leverage – at which banks enter the PCA framework.
The RBI has also given itself greater discretion in terms of the measures it can use to intervene in banks once they fall under the PCA framework, which suggests it has recognised a need to take corrective action at an earlier stage when banks run into difficulties. Rating agency Fitch said that the previous PCA, in contrast, explicitly reserved the most interventionist actions for banks that had breached more extreme thresholds.