NPA: RBI initiates Prompt Corrective Action against Bank of Maharashtra as NPA mounts

MUMBAI: The Reserve Bank of India has initiated prompt corrective action on Bank of Maharashtra placing restriction on the banking activities. This RBI has said that the action is take on the bank in view of high level of bad loans. However, RBI also added this action will not have any material impact on the performance if the banks and will contribute to improve the internal controls of the bank and improvement in its asset quality, profitability and efficiency.

This is the sixth bank to be placed under PCA by the RBI and of this five banks were placed under PCA in the last three months. RBI has initiated PCA on Central Bank of India, IDBI Bank, UCO Bank, Dena Bank and Indian Overseas Bank. The move will restrict the bank from announcing dividend, opening branches, hiring and giving loans to companies rated below investment grade.

Bank of Maharashtra posted net loss of Rs 1372 crore in fiscal year 2016-17 and its gross NPA had cross 16% against 9.3% a year ago.

In the past, the RBI has clarified that PCA imposed on certain banks is not intended to constrain the normal operations of the bank for the general public. The regulator clarified that the PCA is triggered so that it allows the regulator to engage closely with the bank’s management in order to improve their financial health.

Rating agency ICRA has stated that 16 government owned banks out of 21 (excluding SBI associates) and two out of 16 private banks might come under the PCA framework

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