RBI takes prompt corrective action on Bank of India

The Reserve Bank of India has initiated 'prompt corrective action' (PCA) against Bank of India (BoI) to stem losses from the huge non-performing assets (NPAs) of the bank which have ballooned to Rs 49,306 crore at the end of the September 2017 quarter.

Under the corrective action. the bank is restricted from issuing of fresh loans and dividend distribution. It also faces curbs on expenses such as opening branches, recruiting staff and giving increments to employees. Further, the bank can disburse loans only to those companies whose borrowing is above investment grades.

Bank of India becomes the tenth public sector bank which will be under a corrective action plan and the first large bank with a balance-sheet size of Rs 9.35 lakh crore.

Dinabandhu Mohapatra, managing director and chief executive officer, BoI, told DNA Money, " The RBI audit for the financial year ended March 31, 2017, resulted in the PCA. Things have improved both on the NPA front and also on the provision since then. For the last five to six months we have been rebalancing our asset book. Our corporate loan exposure has come down to 48% from 52%, and the retail loans have grown by 16%. The NPA provision is about 65%, the highest in the industry."

"We are also going to put a few non-core assets on sale in the next quarter, which will improve the capital position of the bank," said Mohapatra.

Bank of India shares dropped as much as 5.4% in the afternoon trade and close at Rs 174.20 a share, 3.94% down on the BSE.

In a filing with the stock exchanges, BoI said Reserve Bank of India has placed it under PCA framework, consequent to the onsite inspection under the risk-based supervision model carried out for the year ended March 2017.

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

A senior bank official said, "We had already signed a memorandum of understanding with the government on selling of non-core assets, slowing down on the corporate loan exposures and trying to resolve the bad debts in a time bound manner."

The bank's asset quality worsened with gross NPAs at 13.22%, as against 13.07 %in the previous year. Net NPAs, however, improved to 6.90 % from 7.79% due to higher amount of write-offs.

For the second quarter ended September, 2017-18, the asset quality improved as gross NPAs declined marginally to 12.62% of gross advances, from 13.45% a year ago. In absolute terms, the gross NPAs stood at Rs 49,306.90 crore as on September 30, 2017, from Rs 52,261.95 crore earlier.

BoI has exposure of Rs 3,500 crore towards 17 of the 28 accounts in the second list identified by the RBI, to be taken to the NCLT before December-end.

Last week, RBI had placed similar restrictions on Corporation Bank. In the past, RBI has placed restrictions on eight banks including Oriental Bank of Commerce, United Bank of India (UBI) Dena Bank, Central Bank of India, IDBI Bank, Indian Overseas Bank, Bank of Maharashtra and UCO Bank. Andhra Bank has partial restriction on recruitments and branch expansions which is not a full fledged correction plan.

Analyst firm Jefferies said in a report, "RBI continues to keep capital, asset quality, profitability as the key measures in the framework. Leverage ratio has been added as a measure of capital in addition to the existing CRAR and CET1 ratios. We find solace that some of the required actions under PCA are already part of the action plan of the banks as per the government's capital infusion plan. Additionally, in the latest round of capital infusion the government has brought in stricter norms in terms of closing loss-making branches and curbing staff expenses."

IN TIGHT SPOT

• The action is part of the ongoing initiatives to clean up the balance-sheets of bad debt-laden public sector banks
   
• It also faces curbs on expenses such as opening branches, recruiting staff and giving increments to employees
   
• Further, the bank can disburse loans only to those companies whose borrowing is above investment grades