RBI puts Bank of India under watch as bad loans surge; shares tumble

Representative photo Photograph:( Zee News Network )

WION Web Team New Delhi, Delhi, India Dec 20, 2017, 10.56 AM (IST)

The Bank of India’s shares tumbled nearly 4 per cent to Rs 174.55 intraday on Wednesday after Reserve Bank of India put it under watch for bad loans. The move will put various restrictions on the lender, including on fresh loans and dividend distribution. 

The bank’s non-performing assets were reported over 6 per cent for two consecutive years

Earlier, a similar action was initiated against Dena Bank, IDBI Bank, Indian Overseas Bank and UCO Bank. 

 According to PCA framework, banks are assessed on three grounds– asset quality, profitability and capital ratios. Not meeting the requirements in any of these parameters could lead to RBI action on banks.

The actions could include stricter norms for lending, branch expansion, management change and asset reduction. The RBI has tightened the thresholds — for capital ratios, NPLs, profitability and leverage – at which banks enter the PCA framework.

The RBI has also given itself greater discretion in terms of the measures it can use to intervene in banks once they fall under the PCA framework, which suggests it has recognised a need to take corrective action at an earlier stage when banks run into difficulties. Rating agency Fitch said that the previous PCA, in contrast, explicitly reserved the most interventionist actions for banks that had breached more extreme thresholds.