The Central Bank of India has been put under a corrective action plan with the Reserve Bank of India (RBI) tightening its noose around banks stressed with non-performing assets and bad loans.
The Central Bank of India is the fifth bank in the past couple of months that the RBI has imposed Prompt Corrective Action (PCA) on. IDBI Bank, Indian Overseas Bank, UCO Bank and Dena Bank are the other four panks who have been placed under the PCA.
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"Reserve Bank of India, vide its letter dated June 13, 2017, has put the bank under Prompt Corrective Action in view of high NPA (non-performing assets) and negative return on assets (RoA)," Central Bank of India said in a regulatory filing today.
"We believe that corrective measures arising out of the PCA will help in improving overall performance of the bank," it further added.
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The Central Bank of India has been dwindling with a surge in its net losses in the last fiscal. The bank had suffered a net loss of Rs 2,439 crore in the last financial year as compared to Rs 1,418 crore in 2015-16.
The bank's net non-performing assets (NPAs) had also increased to 10.20 per cent of net advances for the fiscal from 7.36 per cent in the previous year.
Rising NPAs, lower credit off take and falling profitability has put PSBs in a tight spot. More PSBs are likely to soon fall under the PAC . These banks will have to very restricted lending to conserve capital, which is fast drying up because of NPA provisioning. Many will focus on fee based income or transaction banking where capital is not required. It is not a good news as PSBs control two third of the banking in terms of advances and deposits.
Banks that are falling under PAC could be possible candidates for merger as the government is very keen on pushing consolidation amongst the PSBs. The guidelines under PCA allows the RBI to take strong action against the management of banks, if they have faltered, and the power to restructure, including carrying out merger of poorly performing banks with stronger ones.