The Reserve Bank of India (RBI) said it has dropped Bank of India (BoI), Bank of Maharashtra (BoM)and Oriental Bank of Commerce from the prompt corrective action plan (PCA) for state-owned banks with high levels of bad loans and insufficient capital, subject to “certain conditions and continuous monitoring”.

The action follows improvements in their asset quality and capital ratios after a review of the performance of government-owned banks currently under the PCA framework. Both BoI and BoM meet the regulatory norms including capital conservation buffer (CCB) and have net non-performing assets (NPAs) of less than 6 percent as per third quarter results, RBI said in a statement on Thursday.

In the case of Oriental Bank of Commerce (OBC), RBI said though the net NPA was 7.15 percent, as per the published results of third quarter, the government has since infused sufficient capital and bank has brought the net NPA to less than 6 percent. Ergo, the restrictions on OBC under the PCS framework were removed, according to RBI.

RBI’s board for financial supervision chaired by new governor Shaktikanta Das took the decision at its meeting on Thursday after reviewing the latest quarterly performance of all the 11 banks on the PCA list. The 11 government-owned banks on the RBI’s list are barred from issuing fresh big-ticket loans or expanding operations and their financial performance is given close scrutiny.

There are 21 listed government-owned banks in India that provide about two-third of the total loans. With nearly half of them under a PCA plan and the rest cautious due to a record $150 billion in bad debt, the government has been keen the curbs be relaxed to boost their ability to lend.

Referring to Bank of India and Bank of Maharashtra, RBI said these banks are not in breach of the PCA parameters as per their published results for the quarter ended December 2018, except return on assets (RoA). “However, though the RoA continues to be negative, the same is reflected in the capital adequacy indicator,” RBI said, adding that these banks have provided a written commitment that they would comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis.

Justifying why the two banks were taken out of the PCA framework, RBI said these banks have also apprised it of the structural and systemic improvements that they have put in place which would help them in continuing to meet these commitments. Further, the government has also assured that the capital requirements of these banks will be duly factored in while making bank-wise allocations during the current financial year.

Bank of India’s net non-performing assets fell to 5.87 percent in the October-December quarter from 7.64 percent in July-September. Its capital adequacy ratio improved to 12.47 percent from 10.93 percent. Bank of Maharashtra’s net non-performing assets fell to 5.91 percent from 10.61 percent while its capital adequacy improved to 11.05 percent from 9.87 percent.

RBI will continuously monitor the performance of these banks under various parameters, said the release.

First Published:Jan 31, 2019 8:41 PM IST