RBI Has Initiated Prompt Corrective Action (PCA) Against These Banks

The Reserve Bank has initiated Prompt Corrective Action (PCA) against Pune-based Bank of Maharashtra (BoM) in view of high level of bad loans and negative return on assets.  BoM has become the sixth state-owned lender to be put under the PCA.

For the year ended March 2017, the net non-performing assets (NPAs) of the bank rose to 11.76 per cent, while return on assets declined to (-) 1.09 per cent. At the same time, the bank reported a loss of Rs 455.4crore for the fourth quarter, while for entire fiscal 2016-17 booked loss of Rs 1,372 crore. The PCA is a framework devised by the RBI that monitors key areas like capital, asset quality and profitability of banks.

As part of the PCA framework, there are few threshold levels with regard to a bank’s common equity tier-I (CET 1) capital, and upon breach of a certain level, a bank may become a likely candidate for resolution via different methods like amalgamation, reconstruction and winding up.

If there is a default on part of a bank to meet depositors’ obligation, a possible resolution process can even be resorted to without any reference to the PCA module. Earlier in April, the RBI revised the PCA framework with a clause that if the bank does not show improvement, then it could be either merged or taken over by other bank.

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