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.
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.
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