RBI puts Corporation Bank under PCA as bad loans shoot up

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The state-run Corporation Bank said that the Reserve Bank of India (RBI) has enforced restrictions on it under the prompt corrective action (PCA) on account of steep rise in bad loans and the need to raise capital.

The lender’s net non-performing loans have crossed 10 percent and it incurred a loss of Rs 1,035 crore in the second quarter of fiscal 2018, as per an report in the Economic Times. Corporation Bank’s capital adequacy ratio is at 10.23 percent, but it needs to sustain at the level of 10.87 percent for March 2018.

The PCA is imposed by RBI to restore financial health of troubled banks. It is triggered when a bank falls short of certain regulatory requirements such as minimum capital, returns on asset and size of non-performing assets.

As a preventive measure to avoid banks going broke, RBI has taken in cognizance couple of trigger points to assess and monitor banks and take corrective actions against them when needed, through PCA. The concerned bank then has to follow a mandatory action plan given by the RBI based on each of the trigger points.
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Once PCA is initiated, Corporation Bank will face restrictions on accessing costly deposits, borrowings from inter-bank market and entering a new line of business or expenses incurred for opening new branches and so on. It will also have to take initiatives to contain its NPAs.

However, Corporation bank issued a statement saying the PCA will not materially impact the bank’s performance and rather, it will help in internal control of the bank’s activities, the newspaper reported.

In a span of 10 months, Corporation Bank is the eighth bank, including UCO Bank, Central bank of India and IDBI bank, against which PCA has been initiated.