 "RBI clamp on IOB")
The Reserve Bank of India (RBI) has announced several restrictions on state-run Indian Overseas Bank.
Chennai-based IOB posted a loss in the second and third quarters of the previous financial year and is considered to have not sufficiently improved its financial health.
Net profit dropped 95 per cent during the quarter ended June to Rs 14.7 crore, from Rs 271.7 crore in the corresponding quarter last year. Net loss was Rs 454 crore in 2014-15.
A ‘prompt corrective action’ is initiated if a bank’s capital adequacy ratio (CAR) goes below nine per cent, its net non-performing assets (NPA) ratio goes above 10 per cent or return on assets (RoA) falls below 0.25 per cent. The RoA was negative in the September and December quarters of 2014-15 and 0.02 per cent in the quarter ended June 2015. However, the CAR and net NPA were above the threshold. The former was 9.75 per cent as of end-June and it has initiated a process to raise about Rs 2,000 crore from the government through issue of preferential shares.
Since the bank has slipped only on one account, non-credit PCA was initiated, which means there will not be any lending restriction. However, branch expansion and recruitment will be restricted, till the regulator is satisfied with the improvement. According to a senior bank official, RBI will be reviewing the progress by the end of December and the end of March.
The previous occasion the central bank initiated a PCA was on Kolkata-based United Bank of India, in 2013-14, after losses for consecutive quarters. The lending restrictions imposed were removed in March this year.
Chennai-based IOB posted a loss in the second and third quarters of the previous financial year and is considered to have not sufficiently improved its financial health.
Net profit dropped 95 per cent during the quarter ended June to Rs 14.7 crore, from Rs 271.7 crore in the corresponding quarter last year. Net loss was Rs 454 crore in 2014-15.
A ‘prompt corrective action’ is initiated if a bank’s capital adequacy ratio (CAR) goes below nine per cent, its net non-performing assets (NPA) ratio goes above 10 per cent or return on assets (RoA) falls below 0.25 per cent. The RoA was negative in the September and December quarters of 2014-15 and 0.02 per cent in the quarter ended June 2015. However, the CAR and net NPA were above the threshold. The former was 9.75 per cent as of end-June and it has initiated a process to raise about Rs 2,000 crore from the government through issue of preferential shares.
Since the bank has slipped only on one account, non-credit PCA was initiated, which means there will not be any lending restriction. However, branch expansion and recruitment will be restricted, till the regulator is satisfied with the improvement. According to a senior bank official, RBI will be reviewing the progress by the end of December and the end of March.
The previous occasion the central bank initiated a PCA was on Kolkata-based United Bank of India, in 2013-14, after losses for consecutive quarters. The lending restrictions imposed were removed in March this year.