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Nachiket Kelkar
Nachiket Kelkar

BAD LOANS

RBI imposes restrictions on Bank of India due to high NPAs

reserve-bank-of-india-reuters [File] Representative image | REUTERS

Bank of India on Wednesday became the latest state-run lender to be hit with a prompt corrective action (PCA) by the Reserve Bank of India as high amount of bad loans among other issues have raised concerns.

Bank of India's shares ended near 4 per cent lower at Rs 174.20 on the BSE, following the announcement.

“RBI has placed the bank under prompt corrective action framework, consequent to the onsite inspection under the risk-based supervision model carried out for the year-ended March 2017, and the report issued thereof,” Bank of India said in a regulatory filing.

Bank of India finds itself in this position due to high net non-performing assets, insufficient common equity tier 1 (CET 1) capital and negative return on assets (ROA) for two consecutive two years, the lender said.

The PCA is typically triggered if a lender's financial parameters worsen below a certain prescribed level.

Under the revised PCA framework, the lender's capital, asset quality and profitability will continue to be the key areas that will be monitored, including the net NPA ratios and return on assets. There will be restrictions on the bank's business activities, including curbs on lending and branch expansion.

Effective from April 1, 2017, RBI had revised the provisions of the PCA framework based on the financials of the banks for the year ended March 31, 2017.

Bank of India is the ninth bank against which PCA has been initiated since April. For the quarter-ended September 30, Bank of India's CET1 ratio stood at 7.21 per cent, and capital adequacy ratio as per Basel III norms was at 12.23 per cent.

Its net non-performing assets stood at 6.47 per cent, while gross NPAs were at 12.62 per cent end of September.

Bank of India said that the PCA would contribute to the overall improvement in risk management, asset quality, profitability and efficiency of the bank.

The RBI had in the past initiated similar PCA against Corporation Bank, Oriental Bank of Commerce, Dena Bank, IDBI Bank, UCO Bank, Bank of Maharashtra, Indian Overseas Bank and Central Bank of India.

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