After placing a host of mid-sized public sector banks under the ‘prompt corrective action’ (PCA) framework due to their weak balance sheets, the Reserve Bank of India now seems to have turned its gaze on large banks.

The Bank of India (BoI), in a stock exchange notice, said the RBI had placed it under the PCA framework, following an on-site inspection under the Risk Based Supervision Model carried out for year ended March 2017, and the report issued thereof.

“This (action) is in view of high net NPA, insufficient CET1 Capital and negative ROA for two consequent years. This action will contribute to the overall improvement in risk management, asset quality, profitability, efficiency, etc of the bank,” BoI said.

As of March-end 2017, BoI had net non-performing assets (NNPA) of 6.90 per cent; common equity tier (CET) - tier I capital of 7.17 per cent; and return on average assets (RoAA) of -0.24 per cent (in FY17) and -0.94 per cent (in FY16).

However, since then, there has been improvement in two of the aforementioned parameters — the NNPA position has improved to 6.47 per cent and CET-I nudged up to 7.21 per cent as of September-end 2017. Information on RoAA was not readily available.

According to the RBI’s revised PCA framework, banks with weak balance sheets may be subject to, among other things, resolution processes such as amalgamation, reconstruction, winding up, or mandatory actions such as restriction on management compensation and directors’ fees.

Besides taking mandatory actions when they breach key risk thresholds within the indicators relating to areas such as capital, asset quality, profitability, and leverage, weak banks will also be subject to discretionary actions related, among others, to strategy, governance, capital, credit/ market risk, HR, profitability, operations and go through special supervisory interactions.

Dinabandhu Mohapatra, MD & CEO, BoI said “Our financial results Q1 (net profit: ₹88 crore) and Q2 (net profit: ₹179 crore) were good. RBI’s action is based on inspection for FY17 and on that basis they have taken a view on certain big accounts, which is not bank-specific but industry-specific. In none of these accounts are we the leader (consortium). So, for those accounts, a view will be taken (by RBI) for all banks in the course of time.”

He underscored that in the last six months the bank has already re-balanced its asset book in favour of retail, SME and agriculture.

“We have brought down our corporate book from 52 per cent to 48 per cent (of the overall loan book). Since we have increased our NPA provision to 65 per cent, our net non-performing assets (ratio) is only 6.4 per cent.

“Given the kind of re-balancing we have done in our asset book, the kind of control on slippages (both in terms of percentage and amount), and growth in retail and agriculture, etc, we have achieved, we are already on the right course,” said Mohapatra.

Other PSBs placed under PCA so far include Indian Overseas Bank, Dena Bank, Corporation Bank, Central Bank of India, IDBI Bank, UCO Bank, United Bank of India, Bank of Maharashtra and Oriental Bank of Commerce.

Meanwhile, United Bank of India on Wednesday said the RBI has prescribed certain additional actions under PCA in view of high NNPA, low leverage ratio and requirement to raise capital based on the assessment of the bank’s position as on March 31, 2017.

“The action points focus on profit retention, capital augmentation, provision coverage, diversification of credit portfolio, rationalisation of expansion and cost control and are well complimenting the steps already taken by the management in these directions,” the bank said in a stock exchange notice.

Fitch Ratings has said that more than half the country’s state-owned banks would breach at least one of the four thresholds specified by the RBI’s PCA framework, mainly owing to high NNPAs.

The credit rating agency felt that the RBI may use the PCA framework to identify weak banks as candidates for mergers.

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