RBI lifts curbs on three PSBs

The Reserve Bank of India (RBI) has decided to allow three public sector banks — Bank of India, Bank of Maharashtra and Oriental Bank of Commerce — to exit the PCA framework following capital infusion by the government and a decline in net non-performing asset ratio.

The RBI, which conducted a review following a demand made by government to lift the restrictions in order to boost credit growth, said, “it was noted that a few banks are not in breach of the PCA (Prompt Corrective Action) parameters as per their published results for the quarter ending December 2018, except for return on assets (RoA).”

“However, though the RoA continues to be negative, the same is reflected in the capital adequacy indicator,” it added.

The PCA framework is triggered when a bank breaches one of the three risk thresholds, and crossing 6% net NPAs is one of them.

Higher provisioning

Bank of India had made significant higher provisioning during the third quarter which saw net NPA ratio declining to 5.87% from 10.29% a year ago. Similarly, Bank of Maharashtra brought down its net NPA ratio to 5.91% from 12.17%. Both the banks reported heavy losses in the third quarter.

OBC, which had made ₹145 crore net profit in the third quarter, reported net NPA ratio of 7.15% at the end of the October-December quarter. RBI justified its action by saying “though the net NPA ratio was 7.15%, as per the published results of third quarter, the government has since infused sufficient capital and bank has brought the net NPA ratio to less than 6%.” Earlier in the day, OBC had informed the exchanges about capital infusion of ₹1,186 crore by the government.

“Hence, it has been decided to remove the restrictions placed on Oriental Bank of Commerce under PCA framework subject to certain conditions and close monitoring,” the RBI said.

RBI said these banks have provided a written commitment that they would comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis . “Further, the government has also assured that the capital requirements of these banks will be duly factored in while making bank-wise allocations during the current financial year.”

With these three lenders out of PCA, there are another eight public sector banks which are still facing restrictions which were imposed due to deteriorating financial health.

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Printable version | Nov 26, 2020 10:25:19 AM |

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