At end of March 2018, PNB — hit by the Nirav Modi-Mehul Choksi scam — reported net NPAs of 11.2 per cent, Union Bank of India’s NPAs were at 8.4 per cent and Canara Bank’s at 7.5 per cent. Under RBI rules, fulfilling any of the three conditions — net NPA levels above 6 per cent, two years of consecutive losses or capital adequacy ratio (CAR) below the regulatory requirement — could put banks under PCA.
“PNB should have been under PCA before the financial year results were declared as its net NPA level was above 6 per cent. The numbers have deteriorated further but it has not been put under PCA. The RBI may be taking a view on a case-to-case basis,” said Karthik Srinivasan, senior vice-president — group head, financial sector ratings at Icra.
All the three have failed the PCA test on the NPA parameter. They are yet to make loss for two consecutive years or breach CAR requirements. Bank executives said RBI’s abrupt decision in February to scrap restructuring schemes, including strategic debt restructuring, came as blow. As a consequence, NPAs —gross and net — have grown substantially in the March quarter.
Prominent banks under PCA are IDBI Bank, Bank of India, Central Bank of India, Dena Bank, Corporation Bank and Allahabad Bank.
RBI has put curbs on all fresh lending at Dena Bank, while restricting lending to risky assets and raising high-cost deposits for Allahabad Bank after further deterioration in their performance in 2017-18.
The Department of Financial Services has called a meeting of the whole-time directors of the 11 banks. The day-long meeting, scheduled on Thursday, would be the first review of the banks after the RBI put them under PCA.
The idea is to understand what actions they have taken after being put under PCA. “We will then decide if some relaxation can be sought from the RBI,” a finance ministry official said.
PNB’s CAR slipped to 9.2 per cent as of March 2018, compared to 11.66 per cent a year back. The bank's core equity tier-1 ratio at 5.96 per cent was slightly above the requirement of 5.5 per cent under Basel III norms — international standards for banks to deal with risk management. During January-March, the bank’s gross NPAs surged to 18.4 per cent from 12.11 per cent in the previous quarter. Net NPAs also went up to 11.2 per cent from 7.5 per cent.
Canara Bank has also been under severe pressure. It reported net losses of Rs 48.59 billion in March 2018 quarter and Rs 42.22 billion for 2017-18. It had reported a net profit of Rs 11.21 billion for 2016-17. As a step to bolster quality of its loan book, Canara Bank began reducing share of risk weighted assets (RWAs). The share of RWA declined to 87 per cent in March 2018 from about 94-95 per cent level a year ago.
Rakesh Sharma, managing director and chief executive officer, Canara Bank, said: “The bank will always maintain CAR at 13 per cent level.” It has shareholder approval to raise equity capital up to Rs 45 billion, which it plans to do by July.
Union Bank of India, too, saw a sharp deterioration in its loan book and credit profile in FY18. It posted a net loss of Rs 25.6 billion for the March 2018 quarter. For 2017-18, the bank posted a net loss of Rs 52.5 billion compared to a net profit of Rs 5.5 billion in the previous financial year.
Union Bank MD & CEO Rajkiran Rai said the bank had decided to absorb the entire provisioning burden in Q4 for slippages due to the new RBI rules on stressed loans, mark-to-market losses and gratuity. “We do not plan to use the leeway given by the RBI to spread provisions over the coming quarters,” Rai said.