On Monday, the Chennai-based Indian Overseas Bank had informed the Bombay Stock Exchange that the RBI has initiated a Prompt Corrective Action (PCA) on the bank, which is triggered if bad loans rise above 10 per cent, capital adequacy ratio slips below 9 per cent, and return on assets falls below 0.25 per cent.
According to a report by Asian Markets Securities, in case of some public sector banks, the gross impaired loans -which includes gross non-performing assets and gross restructured loans -have crossed 15 per cent. This comes at a time when demand for credit has dried up and slippages continue to be at an elevated level which in turn could hurt banks' earnings.
The report says that as on March 2014-15, the gross impaired loans of Central Bank was 21.3 per cent, Andhra Bank's was 16.4 per cent, Allahabad Bank's was 16.6 per cent and Punjab National Bank's was 15.9 per cent. During the same period, the provision coverage ratio -the total provisions set aside to write off bad loans -is less than 60 per cent.
Banking experts said the move to impose PCA on Indian Overseas Bank was taken after the RBI inspected the bank and found several irregularities.
The bank cannot open new branches, declare dividend and recruit new employees without RBI's approval.
"However, the regu lator has not placed any restrictions on lending, which means that the regulator is more concerned about the way the bank is run," they added. In a notice to the ex change, the bank has said that "this action will not have any material impact on the growth prospects performance of the bank. The directions given by the RBI are for improving its internal controls and consolidation of its activities".
In the past, the central bank had initiated Prompt Corrective Action on United Bank of India after it came to light that the bank's bad loans were much more than declared.
The restrictions were, however, lifted after two years once its performance improved.
Source : Economic Times