Exclusive: Bank of India, Bank of Maharashtra to come off RBI watchlist - source

By Suvashree Choudhury

NEW DELHI (Reuters) - Bank of India and Bank of Maharashtra will be dropped from the Reserve Bank of India's prompt corrective action plan (PCA) for state-owned banks with high levels of bad debt and inadequate capital, a source told Reuters on Thursday.

The move follows improvements in their asset quality and capital ratios and a ruling by the RBI on Thursday, said the source, who asked not to be identified as the discussions are private.

The RBI's board for financial supervision chaired by new governor Shaktikanta Das took the decision at its meeting on Thursday after reviewing the latest quarterly performance of all 11 banks on the PCA list, the source said.

Bank of India shares rose as much as 5 percent after the news before ending 3.65 percent higher. Bank of Maharashtra rose as much as 5.6 percent before ending up 3.2 percent.

A third lender may also be removed from the list pending the outcome of a technical clarification from the bank, the source added.

The RBI did not respond to an email seeking comment.

The 11 state-owned lenders on the RBI's list are barred from issuing fresh big-ticket loans or expanding operations and their financial performance is given close scrutiny.

There are 21 listed state-run banks in India that provide about two-third of the total loans. With nearly half of them under a PCA plan and the rest cautious due to a record $150 billion in bad debt, the government has been keen the curbs be relaxed to boost their ability to lend.

Bank of India's net non-performing assets fell to 5.87 percent in the October-December quarter from 7.64 percent in July-September. Its capital adequacy ratio improved to 12.47 percent from 10.93 percent.

Bank of Maharashtra's net non-performing assets fell to 5.91 percent from 10.61 percent while its capital adequacy improved to 11.05 percent from 9.87 percent.

The government increased its planned capital infusion into state banks by 410 billion rupees ($5.76 billion) to 1.76 trillion rupees in the current fiscal year ending March.

(Editing by Euan Rocha and Jason Neely)