RBI puts Uco Bank under 'corrective action' as NPAs mount

The Reserve Bank of India (RBI) has initiated 'Prompt Corrective Action' against UCO Bank, following mounting losses, continuous erosion of net worth and huge NPAs at the state-run lender.

Uco bank on Friday informed stock exchanges that the apex bank, through a letter on 5 May, has initiated "prompt corrective action", imposing restrictions on some of its business activities over its high bad loans and negative return on assets.

The public sector lender faces various business restrictions, including on fresh loans and dividend distribution.

"There would be check on management compensation and directors' fees as well as the sector regulator has invoked prompt corrective action (PCA) for the bank, aiming to bring it back on recovery path," reports quoting a Uco Bank official said.

"Reserve Bank of India (through a letter dated May 5) has initiated Prompt corrective Action for UCO Bank in view of high net NPA and negative RoA (return on assets)," UCO Bank said in a regulatory filing.

Gross non-performing assets (NPAs) or bad loans of the bank grew to 17.12 per cent of gross advances at the end of 2016-17, from 15.43 per cent earlier.

Uco Bank is the second lender after IDBI Bank to face similar RBI action this week.

The UCO Bank filing further said these measures "aim at improving" performance of the bank and strengthening its internal controls.

"These measures will not adversely impact performance of the bank," it said in the filing.

RBI had, in 2015, put another state-run lender Indian Overseas Bank under 'Prompt Corrective Action' (PCA).

RBI had last month issued a revised set of enabling provisions under the PCA framework with a clause that if the bank does not show improvement then it could be either be merged or taken over by other bank.

UCO Bank, which declared its financial results for the fourth quarter of 2016-17 today, a narrowing of its loss to Rs588.19 crore during the January-March 2017 quarter as provisions for bad assets fell. Net loss stood at Rs1,715.15 crore in the same period last year.