RBI curbs on Allahabad Bank

Illustration Ajay Mohanty

The Reserve Bank of India on Saturday initiated prompt corrective action against public sector lender Dena Bank, restricting it from giving fresh credit and new hiring, PTI reported.

The UCO Bank stock fell in early trade after the government-owned lender reported a almost four-fold rise in its net loss at Rs 2,134.36 crore for the fourth quarter ended March 2018. In a statement to the stock exchanges, Allahabad Bank said the RBI has advised it of certain additional actions, which are restriction in expansion of loans, reduction in exposure to un-rated and high-risk advances, and to restrict creation of non-banking assets. This loss was much wider than the net loss of Rs 575 crore recorded in the same quarter past year.

On yearly basis, net loss of the bank rose to Rs 4,436.37 crore from a loss of Rs 1,850.67 crore in fiscal ended March 2017.

On asset front, gross bad loans or non-performing assets (NPAs) hit a high of 24.64 per cent (Rs 30,549.92 crore) of the gross loans as on March 31, 2018 against 17.12 per cent (Rs 22,540.95 crore) a year ago. Analysts point that till a few quarters ago, commentary from most banks was that much of the stress in the system had been recognised, and therefore, the continued worsening results will only add to the worry.

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Under the PCA, banks face restrictions on distributing dividends and remitting profits.

The RBI has initiated similar action against other public sector banks, including IDBI Bank, Indian Overseas Bank and UCO Bank before this. "We all know that NPAs are very high, recognition is still not done and as you recognise it, you make more provisions for it and the losses are only going to increase", Madan Sabnavis, chief economist at CARE Ratings told THE WEEK. 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.

He further said the banks which are out of the PCA ambit have a crucial role to play in the economy. This is the third consecutive year that the bank has posted a net loss.

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