The Reserve Bank of India (RBI) has imposed certain restrictions on Corporation Bank from carrying out its banking operations on account of mounting bad loans. The corrective action by RBI comes after bad loans in the bank crossed 10%. This also signals the need to raise capital in the bank before returning to operations in a full swing.
Similar prompt corrective action (PCA) by RBI has already been taken against many banks in India. Corporation Bank is the eighth bank in the country to face this action in the last 10 months. Following the imposition of the PCA, the bank will face a lot of restrictions in its everyday operations. It cannot open any new branches, recruit new staff, or provide salary hikes to employees. Most importantly, the bank can provide loans to companies that have high investment grades.
Following the action, the bank released a statement saying that this move will not cause any issues in its everyday operations and performance. The bank said that it will focus on activities that contribute to its improvement.
Some of the banks that have already faced this action from RBI include Oriental Bank of Commerce, Indian Overseas Bank, UCO Bank, Dena Bank, Bank of Maharashtra, IDBI Bank, and Central Bank of India. By placing these banks under PCA, RBI has allowed the banks to focus on restoring their financial health.
Corporation Bank is a public-sector bank headquartered in Mangalore. In the second quarter results released on November 14, the bank reported a net loss of Rs.1,035 crore. A sizeable portion of the bank’s money were tied under several accounts in the insolvency process. Non-performing assets in this quarter surged to 10.24% as against 6.91% in the same period last year. Moreover, the asset quality of the bank also worsened during this period. All these factors contributed to the PCA action by RBI.
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