At least a dozen banks could face the Reserve Bank of India (RBI)’s prompt corrective action (PCA) measures under the revised guidelines, data complied by FE showed. While most of the banks are state-owned, an old private sector lender — Dhanlaxmi Bank — also features in the list.
On the asset quality parameter, which specifies penal action if gross non-performing assets (NPAs) of a bank reaches 6% of its net advances, 11 banks have breached the threshold. The highest net NPA ratio was reported by Indian Overseas Bank (IOB) at 14.32%, followed by Dena Bank at 10.66% and United Bank of India at 10.62%. IDBI Bank, which follows United Bank, has a net NPA ratio of 9.61% and has had PCA initiated against it on Tuesday.
Ruling out any further forbearance for stressed assets, Reserve Bank of India governor Urjit Patel had said last month that it would instead issue revised prompt corrective action (PCA) guidelines and use its new enforcement department to manage the bad loan crisis.
On the RoA front, all 12 banks have reported negative numbers in FY16. Dhanlaxmi Bank can be classified under risk threshold 2 since its RoA remained negative for the last three consecutive years — FY16, FY15 and FY14. If the bank reports negative RoA in FY17 as well, it will be classified as risk threshold 3.
According to RBI rules, a bank has to report negative RoA for at least two consecutive years to breach the threshold.
Under the PCA, banks face restrictions on distributing dividends and remitting profits. The owner 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. The RoA numbers have assumed greater significance since the government infuses capital into public sector banks based on their weighted average of RoA for the previous three years. In the current financial year, the government plans to infuse Rs 10,000 crore into PSBs.