Allahabad Bank barred from loans

RBI restricts Dena Bank from lending after mounting bad loans lead to dismal earnings result

Last week, Allahabad Bank reported a stand-alone net loss of almost Rs 3,510 crore for the last quarter ended March of 2017-18 due to more than three-time rise in its provisions for bad loans.

Earlier in May past year, RBI had initiated prompt corrective action against Dena Bank and imposed certain restrictions, in view of high net NPA and negative Return on Assets.

Already, 11 of the 21 PSU banks have been under the RBI's prompt corrective action (PCA) framework.

"In a regulatory filing on Monday, the lender said: ".the Reserve Bank of India, having regard to the Bank's CRAR and Leverage Ratio position, has advised certain additional actions".

The net loss stood at Rs 575.26 crore in the January-March quarter of 2016-17. According to a Business Standard report, RBI has put further restrictions on providing fresh credit exposure and hiring new personnel.

The massive clean-up of bad loans in India is turning out to be a prolonged battle for survival for the country's banks.

The city-headquartered bank said that the PCA framework was initiated consequent to the onsite inspection under risk-based supervision model (of RBI) carried out for the year ended March 31, 2017.

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Its return on assets became negative at (-) 5.77 per cent at the end of March quarter as against 0.19 per cent a year ago.

It also reported that its gross non-performing assets went up to Rs 26,562.79 crore as on March 31, up by 28 per cent from Rs 20,687.83 crore a year ago.

When triggered, the prompt corrective action prevents a bank from offering dividends and imposes various restrictions such as branch expansion and management compensation, depending on the level of deviations from the benchmarks set by the regulator.

The RBI has initiated similar action against other public sector banks, including IDBI Bank, Indian Overseas Bank and UCO Bank before this.

"The problem is very serious, it has been growing for two quarters at least, particularly since October and therefore, there is concern". As per the revised framework, lenders need to identify incipient stress in loan accounts immediately on default and classify stressed assets as special mention account.

The worsening financial health of banks could have wider implications on the economy, too.

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