Employees work inside a Bank in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Bank Of India Moves Closer To Exiting RBI’s PCA Framework

Public sector lender Bank of India, on Monday, reported a large loss at it stepped-up provisions against bad loans. By doing so, the lender has seen its net bad loans drop below the threshold that invites corrective action from the Reserve Bank of India.

Bank of India is one of the eleven government-owned lenders currently under the RBI’s prompt corrective action framework. Since the framework restricts the lending capacity of these banks, the government has been keen that restrictions on some of them be lifted. By stepping up provisions significantly, Bank of India has a good chance of exiting the framework.

The bank reported a net loss of Rs 4,736 crore in the October-December 2018 quarter compared to a net loss of Rs 2,341 crore a year ago. The bank set aside Rs 9,719 crore as provisions during the quarter compared to Rs 4,373 crore a year ago.

The bank’s gross non performing assets ratio was steady at 16.31 percent. But the step-up in provisions pushed down the bank's net NPA ratio to 5.87 percent as on Dec. 31, 2018 compared to 7.64 percent at the end of the September quarter. Provision coverage ratio now stands at a comfortable 76.76 percent.

The bank’s capital adequacy ratio rose to 12.47 percent compared to 10.93 percent last quarter.

While there are no fixed rules for banks exiting the PCA framework, Bank of India's net NPA and capital figures are now better than the minimum risk threshold of 6 percent and 10.25 percent respectively. However, the bank’s return on assets, the third criteria used to assess a weak bank, remains negative.

“We are not there as far as profit parameters are concerned but our NPA and capital numbers are looking strong. We will see what the RBI considers...it would be speculative to say whether we are exiting PCA,” said Dinabandhu Mohapatra, chief executive officer of Bank of India at a press conference.

In December 2018, the government had infused Rs 10,000 crore into Bank of India as part of its recapitalisation plans. This helped the bank step up provisioning and improve its capital position.

Bank of India has been under PCA since 2017, much like at least 10 other public sector lenders. The regulator mandates banks under PCA to shut down non-performing branches and reduce exposures to borrower segments which attract higher risk weight.

Operational Performance

The bank saw its gross advances increase 11 percent over last year. Retail credit rose 18 percent. Net interest margin across the bank’s domestic operations was at 3 percent.

The quarter, however, saw net slippages double to Rs 4,315 crore due to recognition of the IL&FS account, said the management. The bank, which has classified all IL&FS accounts as NPAs, has a total exposure of Rs 3,400 crore to the infrastructure conglomerate.

The bank also said that there had been a divergence of Rs 245 crore in bad loan reporting during FY18. The divergence in provisioning during the last financial year stood at Rs 1,418 crore.

While the bank hopes to see recoveries from bad loan cases being resolved under the insolvency process, it acknowledged the progress has been slow. If some of the large NCLT account do not see resolution in the fourth quarter, the bank may look to sell loans to asset reconstruction companies, said Mohapatra.