RBI CRACKS THE WHIP
As part of its prompt corrective action (PCA) plan, the Reserve Bank of India (RBI) has asked state-owned Dena Bank to refrain from issuing fresh loans or hiring personnel in view of its escalating non-performing assets (NPAs). On May 11, the bank declared a net loss of Rs 1,924 crore for financial year 2017-18, the third consecutive year when it was in the red. Gross NPAs rose Rs 2,192 crore in the last quarter to Rs 16,361 crore (as of March-end 2018). The RBI has also restricted Allahabad Bank from high-risk lending and high-cost deposits.
The two were part of 11 public sector banks (PSBs) put on ‘close watch’ by the RBI for their weak financials. The central bank has initiated a series of steps to rein in bad loans at PSBs. Gross NPAs of all banks in the country amounted to Rs 8.4 lakh crore in December 2017, the lion’s share of which came from state-owned banks. In February, the RBI cracked the whip on banks going slow in resolving cases of large bad loans, even setting a deadline for their resolution—six months in NPA cases of Rs 2,000 crore or more, failing which banks will have to compulsorily refer such cases for insolvency proceedings to the National Company Law Tribunal (NCLT).
The RBI has also issued definitions of various resolution plans and an indicative list of financial difficulty, directing banks to share data on certain defaulters with RBI’s database of large exposures on a weekly basis. For accounts with exposure of Rs 100 crore to Rs 2,000 crore, a timeline for resolution will be announced over a two-year period. The existing resolution frameworks and the joint lenders’ forum (JLF) have been discontinued. JLF was a dedicated group of lender banks,
Allahabad Bank and Dena Bank were part of 11 PSBs put on ‘close watch’ by the RBI for their weak financials
which was formed to speed up decisions when an asset (loan) of Rs 100 crore or more became an NPA (when a borrower fails to repay the loan). However, it had been criticised for failing to resolve cases of bad loans speedily.
Meanwhile, more PSBs could come under the PCA mechanism if their quarterly numbers show any further erosion of capital or their bad loans grow unchecked. Under the lens are the United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce and Bank of Maharashtra. In October 2017, the Centre had announced a Rs 2.11 lakh crore recapitalisation plan for PSBs, but that came with a lot of caveats. “The recapitalisation plan, while emphasising state support, had also upped the ante on responsible banking,” says Krishnan Sitaraman, senior director, Crisil. That clearly has not happened. The 11 named state banks accounted for Rs 52,311 crore of the capital infusion plan. In a separate development, Allahabad Bank has removed Usha Ananthasubramanian as its MD & CEO after the CBI named her in the Rs 13,700 crore Punjab National Bank-Nirav Modi fraud. She was MD & CEO of PNB from 2015 to 2017.