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July 10, 2001
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Money > Business Headlines > Report July 10, 2001 |
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RBI clamps down on errant Dena BankBS Banking Bureau The Reserve Bank of India is set to invoke prompt corrective action on the loss-making Dena Bank as it has failed to stay above prudential benchmarks on the capital adequacy, asset quality and profitability fronts. This is the first instance of a public sector bank's non-performance triggering a PCA. PCA is a structured intervention by the apex bank, aimed at identifying problem banks early and monitoring their behaviour in an attempt to prevent failure or to limit losses. The PCA has been triggered as Dena Bank's capital-to-risk weighted assets ratio as on March 31, 2001 stands at 7.73 per cent (as against the prescribed level of 9 per cent), net non-performing assets to net advances are at 18.37 per cent (trigger is set off once net NPAs cross 10 per cent) and return on assets is less than 0.25 per cent. Among other things, the central bank will restrict expansion of risk-weighted assets and ask for a capital restoration plan. Dena Bank will also need prior approval of the RBI for opening new branches and new lines of business, pay off costly deposits and certificate of deposits, prune overheads, take special drive to reduce the stock of NPAs and review its loan policy. The apex bank's move is in line with one of the core principles of the Basel committee on banking supervision, which mandates that banking supervisors have at their disposal adequate supervisory measures, backed by legal sanctions, to bring about timely corrective action when banks fail to meet prudential requirements. In extreme circumstances, the Basel committee recommends revocation of the banking licence and penal actions like restricting or suspending payment to shareholders, restricting asset transfers, restrictions on discretionary powers of managers, directors or controlling owners, arranging a take-over by or merger with healthier institutions. Dena Bank posted a net loss of Rs 2.66 billion in fiscal 2000-01, thanks to fresh slippages of Rs 7.88 billion, coupled with an outgo of Rs 1.07 billion on account of the voluntary retirement scheme. It had earned a net profit of Rs 630 million (Rs 1.10 billion in 1998-99), despite slippages of around Rs 8 billion in 1999-2000. Powered by YOU MAY ALSO WANT TO READ:
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