RBI tells Dena to mend ways

Calcutta, June 2: The Reserve Bank of India has directed public sector lender Dena Bank to set its house in order, the third bank against which the apex bank has initiated the revised prompt corrective action (PCA) as the bad loan problem asphyxiates Indian banking.

Dena's high non-performing assets and its negative return on assets have prompted the apex bank to take action against the Mumbai-based bank.

The regulator's move will put certain restrictions on the bank's operation, including the curtailing of branch expansion (both domestic and overseas) and curbs on dividend besides increasing provisions for bad debt.

The bank may also have to exercise caution towards lending to borrowers with weak credit ratings and prepare a road map for lowering non-performing assets and improve financial health.

"Reserve Bank of India, vide their letter dated May 31, 2017, has initiated Prompt Corrective Action for Dena Bank in view of high net NPA and negative ROA," Dena Bank in a regulatory filing at the Bombay Stock Exchange.

Dena Bank's net non performing asset ratio during the financial year ended March 31, 2017 was 10.66 per cent. It has gone up from 6.35 per cent a year ago. The return on assets during the year was a negative 0.67 per cent compared with negative 1.02 per cent in the previous year.

The bank had suffered a net loss of Rs 863.63 crore in 2016-17 against a loss of Rs 935.32 crore in the previous year.

"The action will not have any material impact on the performance of the bank and will contribute to improve the internal controls of the bank and improvement in its activities," the filing added.

The revised prompt corrective action framework of the Reserve Bank of India came into effect from April 1, 2017.

Earlier, similar action was initiated against other state-owned lenders - IDBI Bank and Uco Bank. In 2015, the RBI had initiated such prompt corrective action against Indian Overseas Bank.