RBI initiates PCA against Bank of Maharashtra as bad loans rise

The Reserve Bank of India (RBI) has initiated Prompt Corrective Action (PCA) against Pune-based Bank of Maharashtra (BoM) in view of the high level of bad loans and negative return on assets.

BoM has become the sixth state-owned lender to be put under the PCA.

This is to inform that the RBI letter dated June 15, 2017, has initiated PCA for the bank in view of high net non-performing assets (NPA), BoM said in a regulatory filing on stock exchanges on Saturday.

"This action will not have any material impact on [the] performance of the bank and will contribute to improve the internal controls of the bank and improvement of its asset quality, profitability and efficiency," it said.

For the year ended March 2017, the net NPAs of the bank rose to 11.76 per cent, while return on assets declined to (-) 1.09 per cent.

At the same time, the bank reported a loss of Rs 455.4 crore for the fourth quarter, while for the entire financial year 2016-17 booked loss of Rs 1,372 crore.

It is to be noted that IDBI Bank, Indian Overseas Bank, UCO Bank, Dena Bank and Central Bank of India have already come under the PCA initiated by the RBI, which is a noose- tightening on fresh loan disbursal as well as the dividend distribution.

The PCA is a framework devised by the RBI that monitors key areas like capital, asset quality and profitability of banks.

As part of the PCA framework, there are few threshold levels with regard to a bank's common equity tier-I (CET 1) capital, and upon breach of a certain level, a bank may become a likely candidate for resolution via different methods like amalgamation, reconstruction and winding up.

If there is a default on part of a bank to meet depositors' obligation, a possible resolution process can even be resorted to without any reference to the PCA module.

Earlier in April, the RBI revised the PCA framework with a clause that if the bank does not show improvement, then it could be either merged or taken over by another bank.