RBI puts BoI, UBI under 'corrective action'

Reserve Bank of India (RBI) has put state-run lenders Bank of India (BoI) and United Bank of India (UBI) under prompt and corrective action framework following an onsite inspection of the two banks carried out under the risk-based supervision model for the year ended March 2017.

RBI move follows a spurt in non-performing assets of the two public sector lenders. Amidst mounting bad loans RBI has placed various restrictions on the banks, including on issue of fresh loans and dividend distribution, the lenders said in separate statements.

In a filing with stock exchanges, BoI said Reserve Bank of India has placed it under Prompt Corrective Action 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, efficiency, etc of the bank," BoI said.

At the end of March 2017, the bank's asset quality worsened with gross non-performing assets (NPAs) at 13.22 per cent, as against 13.07 per cent in the previous year. Net NPAs, however, improved to 6.90 per cent from 7.79 per cent.

For the second quarter ended 30 September 2017, BoI's gross NPAs declined marginally to 12.62 per cent of gross advances against 13.45 per cent a year ago, showing some improvement in asset quality.

Net NPAs also improved to 6.47 per cent of net advances, down from 7.56 per cent a year ago.

In absolute terms, gross NPAs stood at Rs49,306.90 crore as on September 2017, against Rs52,261.95 crore earlier.

The RBI has initiated similar action against other public sector banks, including IDBI Bank, Indian Overseas Bank and UCO Bank.

The Reserve Bank in April had issued a new set of enabling provisions under the revised 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.

United Bank of India on Wednesday said the RBI has prescribed certain "additional actions" under the Prompt Corrective Action (PCA) framework against it over its high net non-performing asset (NPA), low leverage ratio and capital needs.

''The Reserve Bank of India vide letter dated December 19 has prescribed certain additional actions under Prompt Corrective Action (PCA) framework, in view of high net NPA, low leverage ratio and requirement to raise capital, based on the assessment of the bank's position as on March 31, 2017.''

The action was focussed on profit retention, capital augmentation, provision coverage, diversification of credit portfolio, rationalisation of expansion and cost control, the filing stated.

As on 31 March the bank's net NPA in absolute term was Rs6,591.85 crore, while net NPA ratio stood at 10.02 per cent. Gross NPA in absolute terms stood at Rs1,0952 crore. For FY17, its net interest margin (NIM) was at 1.60 per cent, while capital adequacy ratio under Basel III norm was at 11.14 per cent with Tier 1 at 7.69 per cent. In the previous fiscal its net profit stood at Rs219.51 crore against a net loss of Rs281.95 crore in the previous fiscal.

''The normal banking activity viz acceptance of deposit, credit disbursement and treasury function remain unaffected and unaltered,'' the public sector lender said, adding the recent regulatory action initiated by the central bank was not likely to have any material impact on its performance and would contribute to the improvement of the internal control and intrinsic strength.

United Bank reported a net loss of Rs344.83 crore for the second quarter this fiscal against a net profit of Rs43.53 crore for the corresponding period last fiscal. The lender had posted a net loss of Rs211.46 crore for the first quarter of the current fiscal.

The bank's asset quality worsened further in the September quarter. Gross NPAs in absolute terms rose 15.8 per cent year-on-year at Rs12,892.67 crore during the period. Gross NPA as a percentage of total loans rose to 18.80 per cent in the September quarter this fiscal from 16.26 per cent during the same period previous fiscal. Provisions and contingencies rose 87.8 per cent y-o-y to Rs753.09 crore from Rs401.03 crore in the corresponding period of FY17.

RBI also placed two other state-run lenders, IDBI Bank and Indian Overseas Bank, under prompt corrective action.