Both Dena Bank and Allahabad Bank are among the 11 public sector banks that have been placed under prompt corrective action (PCA) by the RBI. Between January and March 2018, Dena Bank's gross non-performing assets (NPA) soared to 22.04% of its total loans, and it reported a net loss of Rs1,225.42 crore ($182.1 million) in the same quarter.
The city-headquartered bank said that the PCA framework was initiated consequent to the onsite inspection under risk-based supervision model (of RBI) carried out for the year ended March 31, 2017. The state-owned lender has also been barred from recruitment of staff. The lender had reported a loss of close to Rs 1,264 crore in the previous December quarter. The bank's board has approved the raising of capital worth Rs 1,900 crore through various routes in its last meeting. Analysts point that till a few quarters ago, commentary from most banks was that much of the stress in the system had been recognised, and therefore, the continued worsening results will only add to the worry.
Prompt Corrective Action framework is a measure/tool to maintain the sound financial health of banks, which involves monitoring of certain performance indicators of the banks as an early warning exercise.
The RBI has initiated similar action against other public sector banks, including IDBI Bank, Indian Overseas Bank and UCO Bank before this.
The higher recognition of NPAs comes after RBI revised its framework for resolution of stressed assets in February, enforcing stricter time lines on recognising bad loans.
He further said the banks which are out of the PCA ambit have a crucial role to play in the economy. Banks are placed under PCA when they are unable to maintain minimum requirements of vehicle, the bank's net non-performing assets (NPAs) moves above 6 per cent or its return on assets (RoA) is negative for two years.
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