The Reserve Bank of India ( RBI) has imposed certain restriction on banking activities of government-owned Oriental Bank of Commerce which has suffered huge losses due to sharp rise in bad loan. This will be the seventh bank among the 21 PSU banks to be placed under restrictions since March this calendar year.
The RBI initiated prompt corrective action or PCA on October 5 in view of high non performing assets, the banks said. OBC will face restrictions in terms of opening new branches, hiring staff and lending to sub-investment grade companies. PCA is imposed when thresholds related to capital, asset quality and earnings are breached. The bank can continue to accept deposits and give small tickets loans.
The bank has said, “This action will not have any material impact on the performance of the bank and will contribute in an overall improvement in its risk management, asset quality, profitability and efficiency.”
RBI has placed restrictions on six banks which include Dena Bank, Central Bank of India, IDBI Bank, Indian Overseas Bank, Bank of Maharashtra and UCO Bank.
The bank had posted annual loss of Rs 1094 crore for the fiscal year 2016-17 and gross NPA of 8.9%. For quarter end June 2017, the bank’s posted net loss of Rs 486 crore and net non-performing loan of 9.5%.
The RBI has, in the past clarified that banks are placed under PCA to facilitate them to take corrective measures to restore their financial health. Reserve Bank pays focussed attention on such banks by engaging with the management closely in certain areas of concern.