The Reserve Bank of India (RBI) has initiated "prompt corrective action" (PCA) on state-run lender Central Bank of India in the view of its high non-performing assets (NPAs) and negative return on assets (RoAs).
"We believe that corrective measures arising out of the PCA will help in improving overall performance of the bank."
The development follows the April 13, 2017, revision of the PCA guidelines by the RBI.
In April, the RBI said that capital, asset quality and profitability would be the basis for the PCA framework on which the banks would be monitored and has defined three kinds of risk thresholds.
In a notification issued that time, the RBI said mandatory action to be taken when a bank breaches the risk threshold includes restriction on dividend payment, remittance of profits, restriction on branch expansion, higher provisions, restriction on management compensation and director's fees.
"The PCA framework would apply without exception to all banks operating in India, including small banks and foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators," the RBI had said.
With regard to credit risk related action, the RBI can ask the banks to prepare a time bound plan and commitment for reduction of NPAs; restrict or reduce credit expansion for borrowers below certain rating grades or unrated borrowers/unsecured exposures/loan/concentration of loans in identified sectors or borrowers.
The bank had posted a net loss of Rs 2,439 crore for the financial year ended March 31, 2017. Its net NPA to net advances increased to 10.20 per cent as on March 31, 2017 from 7.36 per cent as on March 31, 2016.
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